CalSTRS divestment: unhappy anniversary

CalSTRS Rally

Jane Vosburg and Carmen Osorio at rally to divest CalSTRS, June 2015

Anniversaries are a time to pop open a bottle of champagne to toast the successes of the previous year; however, the first anniversary of Fossil Free California’s (FFCA) relationship with California’s state teachers’ pension fund, CalSTRS, has forced us to keep the bottle corked and hope for better days ahead. Why? Although teachers value CalSTRS as the guardians of their retirement, they were dismayed that after urging them for over a year to divest from all fossil fuels, CalSTRS didn’t.

Instead, by remaining invested in fossil fuels, CalSTRS lost over $2 billion.

Why divest? 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. Financial expert Henry Paulson, President G.W. Bush’s Secretary of the Treasury during the housing collapse, alerts, “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. Security and Exchange Commission under President Reagan, 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; the pressure from grassroots 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. A study from Impax Asset Management shows that over a period of five years, investors could have substituted clean stocks for fossil fuel stocks without any negative impact. Some fossil free portfolios out-performed those still holding fossil fuels. Another study by S&P Capital IQ using the S&P 500 index shows that had divestment occurred ten years ago, a $1 billion endowment would have yielded $119 million more in profit.

At February’s Investment Committee 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. 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 ten years, the Rockefeller Brothers’ Fund (RBF)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.

New York State Comptroller Thomas DiNapoli concurs that engagement yields unsatisfactory outcomes:

Investors have repeatedly engaged fossil fuel companies, but the results have fallen short given the threat it poses to the entire global economy.

In addition, Longstreth explains that engagement actually benefits fossil fuel companies:

Engagement is likely to assist Big Oil and Big Coal in postponing the day when governments limit the burning of fossil fuels…. It legitimizes talk over action. In truth, if the engagement crowd didn’t exist, the fossil fuel giants would by now have invented them.

As for the effectiveness of divesting, Nelson Mandela’s first destination after his release from prison was UC Berkeley. He thanked the students for initiating the divestment movement which helped speed the end of apartheid in South Africa. Hopefully, the day will soon come when teachers, students, and parents throughout California will thank CalSTRS for its leadership—a day when CalSTRS will no longer contribute to global warming and will no longer ignore the warnings of esteemed financial experts.

The good news is that we are on the verge of a clean energy revolution. The US has the technology to be powered 100% 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.

CalSTRS, it’s time 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.

CalSTRS is an important pension plan that teachers value. As we continue our relationship, I hope that we will soon reach for that bottle of champagne and celebrate the news that CalSTRS is fulfilling its fiduciary duty by responsibly divesting from The Carbon Underground 200 oil, coal and gas companies. Morally, it’s the right thing to do. Financially, it’s the smart thing to do.

Jane Vosburg is a CalSTRS member, an FFCA coordinator to divest CalSTRS, and the divestment coordinator for 350 Sonoma County. A shorter version of this article appeared in the Sacramento Bee 8/26.

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