Will 2015 be the turning point for shedding dependence on fossil fuels? Recent events suggest it could be. President Barack Obama just introduced landmark environmental regulations to limit power plant emissions. More than a dozen multinational corporations committed billions in new low-carbon investments. And by year’s end, an international accord to slow global warming may be reached at a United Nations convention in Paris.
Closer to home, the state’s two pension funds participate with other public and private institutional investors in statements calling for action. These coordinated statements already have led to substantive policy changes, regulations and directives that give alternative-energy developers the certainty that investors will back them.
What about divestment to reduce our reliance on fossil fuels?
I am not convinced that divestment is the best approach. The sheer volume of energy and magnitude of pension assets that needs to be replaced is simply too great. The better alternative is engagement.
The California Public Employees’ Retirement System and the California State Teachers’ Retirement System collectively hold about $492 billion in assets. I want the companies in which the funds invest to be preparing for a carbon-free future.
I see the potential for swaying corporate behavior in ways that will ease the transition to a green-energy economy.
Both pension funds ask companies – even those with only a peripheral connection to fossil fuels – to examine the long-term business risks from climate change and to take action accordingly. How will climate change disrupt the way they do business? Have they assessed the risks and disclosed them? How can they change to survive and thrive in the new energy environment and economy?
The pension funds also need alternatives to investing in traditional fossil-fuel enterprises – no-carbon and low-carbon index funds with proven track records that ultimately can help them divest naturally when the business climate dictates and the transition to cleaner energy has taken hold. This is our fiduciary responsibility to the 2.5 million pension-fund beneficiaries who rely on the retirement benefits they earned while serving as public-sector workers and educators.
The question is not whether we will move to depend less on fossil fuels – the question is how quickly. California has led with its signature cap-and-trade program. Lower natural-gas prices have caused coal companies to shutter domestic plants. The solar industry has enjoyed government subsidies for major technological developments. Wind production is less costly and more advanced thanks to tax credits. Consumer demand and incentives for reduced-emission vehicles have created new industries.
As more are recognizing the urgent threat of global climate change, the transition to renewable energy will accelerate and spur incentives, investments and innovation. This will lead to more jobs, energy savings and health improvements for all. Let’s build on this good news.
Betty Yee is state controller and sits on the boards of CalPERS and CalSTRS. The views expressed are her own.