Somerville Retirement Board Statement on Fossil Fuel Divestment

Somerville Retirement Board Statement on Fossil Fuel Divestment

The Somerville Retirement Board (SRB) continues its due diligence in respect to fossil fuel divestment and its impact on the investment portfolio.

As an independent entity, the SRB must act, according to state law, "for the exclusive purpose of providing benefits to members and their beneficiaries" with "care, skill, prudence and diligence... by diversifying the investments of the system so as to minimize the risk of large losses unless under the circumstances it is clearly prudent not to do so." (Massachusetts General Laws, Chapter 32, Section 23 (3), Fiduciary Standards.)  As a result of prudence and diligence the SRB has posted an 11.55% Five Year Rate of Return with a Ten Year Rate of Return of 7.67%, ranking 5th in both categories in the state out of 105 Retirement Boards.

The SRB must also act in compliance with the Public Employee Retirement Administration Commission (PERAC). PERAC was created for and is dedicated to the regulation, oversight, guidance and monitoring of the Massachusetts Public Retirement Boards.

While performing its research and due diligence, the SRB received a letter from PERAC dated June 15, 2015, (attached) questioning the legality of a Request for Proposal (RFP) for a fossil free investment under the provisions of M.G.L. Chapter 32, Section 23 (3). In the view of PERAC, the issuance of such an RFP restricts the universe of investments (i.e., with regards to fossil fuel divestment) and PERAC has indicated that they will not approve an RFP for investment management services that they view as restrictive. PERAC approval is required for the issuance of an RFP for management investment services.

The SRB will continue a dialogue with PERAC on this matter and is actively discussing the issue of fossil fuel divestment in its periodic meetings with its investment managers.

The question of whether it is prudent to divest from fossil fuel companies can only be answered through diligent research, weighing the possible gains for the environment and those vested in the retirement system against the potential losses and risk for members and retirees. The SRB is also closely monitoring the outcome of House Bill No. 2372, which would establish a state commission to study the feasibility of divestment of fossil fuels from the Commonwealth's pension systems. That bill has been referred to the Joint Committee on Public Service, and no further action has been taken since.

As the state seeks to do through that bill, the SRB can only vote on this issue after the appropriate analysis is completed and presented to the Board's members.  Once the Retirement Board has completed its due diligence, it will consider the research while adhering to its duties enumerated under state law, including the aforementioned law, the Prudent Investor Act (Massachusetts General Laws Chapter 203C), and the regulations of the (PERAC).