New state Senate bill would force CalPERS, CalSTRS to divest from major fossil fuel holdings

California’s two powerful public employee pension funds would be required to withdraw their investments from fossil fuel companies to help fight climate change under a state Senate bill introduced Thursday.

Authored by Sen. Lena A. Gonzalez, D-Long Beach, and co-sponsored by Sen. Scott Wiener, D-San Francisco, the legislation would give the California Public Employees' Retirement System and the California State Teachers' Retirement System until July 2027 to divest a combined $9.9 billion from the Carbon Underground 200 — a list of companies considered to have the greatest potential for future emissions from their coal, oil and gas reserves.

The bill also would prohibit any new investments in those companies.

During a virtual news conference Thursday, Gonzalez said the bill would help leverage the earnings of nearly 3 million active and retired public schoolteachers, college instructors, state and local employees in the effort to draw down greenhouse gas emissions and prevent the worst effects of climate change.

It also would align the pension fund’s investment strategy with the state’s own, large-scale effort to slow and mitigate global warming. That strategy involves the investment of billions of dollars on clean energy and transportation, climate mitigation and environmental equity, drought response, forest health and wildfire prevention.

“While California has taken a leading role on the world stage in advancing landmark and far-reaching policy and budget solutions to fight climate change, we are also unfortunately faced with the contradictory and incongruent fact that our state’s two largest employee pension funds use their enormous investment power to finance the very companies that are driving climate change,” Gonzalez said.

CalPERS and CalSTRS are the two largest, non-federal public pension funds in the United States, with approximately $469 billion and $327 billion in assets, respectively.

About 1,500 institutional investors from around the globe, with assets approaching $40 trillion, have pledged to divest their fossil fuel holdings, according to 350.org and stand.earth. They include everyone from Queen Elizabeth and Harvard University to the Episcopal Church and New York City.

Proponents, including many local teachers and members of CalSTRS who are active in the divestment campaign, say they feel a moral obligation to ensure their earnings are not directly capitalizing fossil fuel companies, financing lobbying efforts or lending them political legitimacy.

Many also worry that the value of those financial holdings could plummet in a changing environmental and investment landscape.

“The sooner we divest, the less of a hit we’ll take — CalSTRS that is,” Taylor Mountain Elementary School teacher Tiffany Kampmann said last fall.

Despite internal and external pressure, leaders of both California public pension funds have refused to change positions, citing their obligations to ensure sufficient returns to provide financial security to their retirees.

They say engagement with fossil fuel companies — pressuring them to lower their emission output using their leverage as an investor — already has delivered results and is the only way to ensure change.

Selling fossil fuel stocks just means someone else will buy them, and the company will move on, business as usual, CalSTRs Chief Investment Officer Chris Ailman said during a symposium on the issue last week.

“Divestment, in our view, doesn’t reduce greenhouse gases,” Ailman said.

CalPERS own position on the subject, according to a 2020 letter from Chief Executive Officer Marcie Frost, is similar.

“One investor selling shares to another does not drive change at a company,” Frost wrote. “It transfers risk. It does not mitigate risk. As a global and universal asset owner we have nowhere to hide from climate change and need to tackle global warming emissions at the source.”

Retired San Francisco State University environmental studies Professor Carlos Davidson, one of several bill supporters who spoke at Gonzalez’ news conference, said energy companies remain committed to blocking climate legislation in Washington and Sacramento, and can’t be trusted to do the right thing.

“We have to stop pretending that fossil fuel companies are good corporate citizens,” said Davidson, who helped lead the 29,000-member California Faculty Association to a vote in favor of CalPERS divestment last year. “Their own scientists knew their product was causing climate change, but the companies kept it secret.”

He likened the current movement to the 1980s divestment campaign that eventually put so much pressure on the government of South Africa that it led to dismantling the system of apartheid. Disinvestment in tobacco products similarly isolated and politically weakened tobacco companies, he said.

The new Senate bill, SB-1173, has precedent in state legislation passed in 2015 that required CalPERS and CalSTRS to divest from companies with substantial earnings from coal.

It also fits neatly into Executive Order 19-19, issued in 2019 by Gov. Gavin Newsom, calling for investments to focus on industries focused on reducing carbon emissions and adapting to climate change, while still aligning with the public pension funds’ fiduciary responsibilities, said Miriam Eide, coordinating director for Fossil Free California.

The legislation would require the pension funds to divest from the Carbon Underground 200, which ranks publicly owned companies according to the potential carbon emissions embedded in their coal, oil and gas reserves. It’s intended to serve as an assessment tool both for screening out carbon-producing investments and avoiding the risk of stranded assets.

Gonzalez said she was motivated to sponsor the bill both as a lawmaker and as the mother of three boys living “in one of the most toxic areas of California.”

“With the combined investment power of over $700 billion, CalSTRS and CalPERS can make powerful and impactful, meaningful decisions in the management of millions of teachers and state employee pensions, many of whom have voiced their desire and concern for their funds to no longer be used to exasperate the issues of climate change,” Gonzalez said.

You can reach Staff Writer Mary Callahan at 707-521-5249 or mary.callahan@pressdemocrat.com. On Twitter @MaryCallahanB.

Editor’s note: An earlier version of this story misstated the name of stand.earth.