State Senate proposal would force CalPERS, CalSTRS to sell oil and gas holdings

A new state Senate proposal would force California’s two largest public pension funds to eliminate all their holdings in oil and gas companies.

Senate Bill 1173, from Sen. Lena Gonzalez, D-Long Beach, would require CalPERS and CalSTRS to eliminate fossil fuel holdings by July 2027.

The state’s two main retirement systems, with combined investment funds worth more than $700 billion, together held about $9 billion worth of investments in companies involved directly in fossil fuel production as of 2020, according to an analysis from advocacy organization Climate Safe Pensions.

“California must align the investment choices we make with our moral and environmental goals,” Gonzalez said in a news release.

The proposal elevates to a new stage a longstanding debate over how best to address the climate impacts of fossil fuels.

Climate advocacy groups say California’s massive pension funds should take a stand by unloading all their fossil fuel investments.

“We’re not so concerned about who buys up those shares,” said Miriam Eide, coordinating director at Fossil Free California. “But what really matters is you’re creating this statement of, ‘this is not a good industry to be in, and it creates a new standard and a new behavior.”

Directors at the California Public Employees’ Retirement System and the California State Teachers Retirement System say the best approach is to advocate as shareholders for the companies to shift toward sustainability.

“One investor selling shares to another does not drive change at a company,” CalPERS CEO Marcie Frost wrote in a 2020 letter to Fossil Free California. “It transfers risk. It does not mitigate risk.”

Additionally, according to a CalPERS investment policy document, divestment “appears to almost invariably harm investment performance.”

Climate advocacy groups, often counting many young people among their members, have been pressing CalPERS’ and CalSTRS’ boards of directors to divest from fossil fuels for at least eight years, said Eide.

“They have not taken action,” she said. “It really feels like it’s time to take it to the next level and to seek a mandate from the Legislature itself.”

The push comes after the University of California and California State University each pledged to divest from fossil fuels, along with Harvard University and a growing list of educational endowment funds.

New York state’s pension fund announced in 2020, when it was valued at $226 billion, that it would divest from fossil fuels within five years.

CalPERS, recently valued at $480 billion, needs to earn 6.8% on its investments each year to avoid pension price hikes for cities, counties and the state.

The system is underfunded, with about 80% of the assets it needs to cover all its long-term debts, and is charging local governments and the state extra each year under a plan to pay down those debts.

Most of the fund’s investments in stocks are purchased through exchanges that track the largest publicly traded companies, including fossil fuel companies.

CalPERS has generally resisted divestment, but has been ordered by the state to divest from specific holdings over the years, and has divested from those tobacco, firearms, coal and companies in Sudan and Iran.

This story was originally published February 18, 2022 at 5:00 AM.