Pension funds should divest from fossil fuel

A plume of steam billows from the coal-fired Merrimack Station in Bow, N.H.
A plume of steam billows from the coal-fired Merrimack Station in Bow, N.H. The Associated Press

The first anniversary of Fossil Free California’s relationship with the state teachers’ pension fund is no occasion to pop open a bottle of champagne.

Although teachers value CalSTRS as the guardians of their retirement, they are dismayed that the fund has refused to divest from all fossil fuels. Instead, by remaining invested in fossil fuels, the California State Teachers’ Retirement System lost more than $2 billion.

Even after this current huge financial loss, investing in fossil-fuel companies remains very risky, particularly for long-term investors like CalSTRS. Our public comments to CalSTRS over the last year echoed warnings by monetary heavyweights (including HSBC, IMF, Citibank, Deutsche Bank and the World Bank) about the threat of stranded assets and the carbon bubble.

Henry Paulson, President G.W. Bush’s secretary of the treasury during the housing collapse, warns: “We’re making the same mistake today with climate change. We can see the crash coming, and yet we’re sitting on our hands rather than altering course. We need to act now.”

Another financial expert, Bevis Longstreth, former commissioner to the U.S. Securities and Exchange Commission, cautions financial institutions of their fiduciary responsibility to divest. He warns of four developments that are hurting the fossil-fuel industry: increased governmental regulations, the renewable-energy revolution, pressure from grass-roots organizations and the stigmatization of the industry by such organizations.

In light of these warnings, why is CalSTRS so reluctant to divest its portfolio? Would divesting from fossil fuels reduce performance? The answer to that is an emphatic “no.”

At a February meeting, Chris Ailman, chief investment officer for CalSTRS, shed light on the fund’s unwillingness to divest from fossil-fuel companies. “From a philosophical standpoint ... it says in our divestment policy that divestment is not our preferred choice,” he said. “We think engagement, ownership, active management is a better way to do it.”

So, how effective is engagement with fossil-fuel companies?

After trying to “engage” ExxonMobil for over 10 years, the Rockefeller Brothers’ Fund chose to divest its $860 million portfolio. During that time, the Rockefellers were unable to persuade Exxon to stop funding climate-change denial and to transition to clean energy.

The good news is that we are on the verge of a clean-energy revolution. The U.S. has the technology to be powered 100 percent by renewable energy by 2050. To avoid climate catastrophe, we need to transition to clean energy urgently. Investing in a doomed industry that wrecks the planet and attempts to obstruct a vital transition to renewable energy is myopic and ill-advised.

It’s time for CalSTRS to heed the warnings of financial experts and immediately invoke a policy of divestment, acknowledge the fruitlessness of engaging with fossil-fuel companies, heed the concerns of your members and reassure children that their teachers’ pension fund no longer supports an industry that threatens their very existence.

Morally, it’s the right thing to do. Financially, it’s the smart thing to do.

Jane Vosburg is a leader of Fossil Free California and a CalSTRS member.

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