Your April 19 editorial (“Politics shouldn’t drive pension investments”) made a valid point. “If (pension funds’) earnings aren’t adequate to meet their obligations, or if they lose money, taxpayers must make up the difference.” Poor returns concern all beneficiaries and taxpayers; this is why Fossil Free California urges CalSTRS and CalPERS to divest from fossil fuels.
Unlike the bills you mention in your article, Fossil Free California urges divestment for financial — not political — reasons. The funds’ $15 billion in fossil fuel investments are at great risk of becoming practically worthless, endangering both retirees and taxpayers while imperiling the planet.
Financial risks to fossil fuel investments are not news. In 2014, former SEC Commissioner Bevis Longstreth predicted four considerable dangers (“The Financial case for divestment of fossil fuel companies,” The Huffington Post):
Increased governmental regulations across the globe.
Since his article, world leaders of 198 countries ratified the Paris climate treaty limiting the increase in global temperature to 2 degrees celsius. To achieve this, 80 percent of current fossil fuel reserves must be designated unburnable, making fossil fuel investments almost worthless.
Advances in renewable sources of energy for power and new technology.
The cost of solar and wind power has plummeted; the electrification of our transportation system is imminent — 400,000 pre-ordered Tesla Model 3s will start to hit the highways in three months.
A rising tide of public action at grass-roots level.
Individuals and institutions have pledged to divest $5.45 trillion of their fossil-fuel assets. Public awareness about the climate crisis is driving landmark events like the People’s Climate Mobilization marches around the globe on Saturday.
Reputational risk from public action that will turn fossil fuel companies into pariahs
The New York and Massachusetts attorneys general are investigating ExxonMobil’s concealment of its own company research, which proved decades ago that burning carbon caused global warming, and for funding a misinformation campaign about climate change. A national campaign has been launched calling on California Attorney General Xavier Becerra to join the investigation.
The Trillion Dollar Transformation initiative, by financial giant Mercer and the Center for International Environmental Law, was created to educate pension trustees on the challenges of the climate crisis. Mercer’s analysis concludes that “climate change will impact pension fund returns, with the biggest impacts in climate vulnerable sectors such as fossil fuels.” The report warns that “pension fund trustees must acknowledge these risks and prepare for unprecedented market changes… A failure to do so could expose their funds to severe losses and themselves to liability.”
And finally, David Bianco, Deutsche Bank’s Chief investment strategist, recently predicted more trouble for the energy sector as a whole. He said,”The energy sector has been the worst performing sector this year to date, and I believe energy has more downside; we’ve got some tough years ahead,” This despite the transitory bump in the markets due to Trump’s presidency.
Why on earth then, with all these warnings, do CalPERS and CalSTRS stubbornly refuse to divest? Why do they insist that shareholder engagement is more effective than divestment?
In Longstreth’s words: “Engagement … gives the fossil fuel giants the protective cover they need to stretch out the transition process to renewables for as long as they can. It legitimizes talk over action.”
Santa Rosa and Sonoma County were well ahead of the curve when they both committed to divest from fossil fuels years ago. By doing so they protected their portfolios.