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Financial outcomes from divesting from fossil fuels

Q:  Will CalPERS and CalSTRS gain or lose money if they divest, given the recent surge in oil prices?

Studies show that financial impacts from divesting are generally neutral to positive. In fact, divestment may even increase pension fund returns (1), given the historical underperformance of fossil fuel-linked securities and the overperformance of divested portfolios on a risk-adjusted basis (2).

Screening out fossil fuel stocks has not had a significant impact on returns for global, well-diversified portfolios—in fact over the past 12 years, the MSCI All-Country World Index without fossil fuels outperformed the MSCI ACWI with fossil fuels (3), and separate studies by BlackRock, the world’s largest asset manager, and financial management firm Meketa found that divestment actions taken by funds worldwide have passed the prudence tests required of fiduciaries (4).

  •  An academic study spanning decades that included previous oil price spikes found no significant difference in performance between portfolios with and without fossil fuels (5).
  • While oil prices rose in response to the invasion of Ukraine, they have already dropped, and the US Energy Information Administration forecasts further decline later in 2023 (6).
  • A study of CalPERS and STRS by Corporate Knights showed that had the funds divested in 2009 and invested the funds proportionally across the rest of the portfolio, they would have netted an additional $17.4 billion in returns (7).  

Q:  Do the funds’ fossil fuel investments cause financial risk?

Yes – fossil fuel investments are volatile and risky.  CalPERS and CalSTRS support the Paris climate goals, yet:

  • the CalPERS portfolio includes $45 billion in assets likely to become “stranded assets” (fossil fuel assets that must remain unextracted) and must be written off in order to achieve those goals. (8). 
  • given the risk that assets are likely to become stranded, “the bet in continuing to hold and try to time one’s exit is an asymmetrical bet that suggests facial imprudence,” according to former SEC member Bevis Longstreth (9).  

Q: We hear CalPERS making claims about transaction and administrative costs when they  divest. Can those claims be substantiated?

Pension funds are constantly buying and selling assets; studies of thousands of companies show that “fossil fuel companies do not provide abnormal risk-adjusted returns and that avoiding investments in these companies does not significantly impair financial performance.” (10). The transaction costs of divestment are relatively minimal. 

CalPERS and CalSTRS have offered little specific evidence in support of their claim that divesting will amount to $75-$125 million and $30.5 million, respectively. This is puzzling, because transaction costs (buying and selling) are already covered in the normal course of business (11).  Moreover,

  • BlackRock’s analysis of funds that have divested found the impact from divestment from factors including transaction costs to be “relatively minimal” (12).
  • Maine’s divestment from fossil fuel companies was based in part on the finding that “[a]dditional costs to the Maine Public Employees Retirement System and the Office of the Treasurer of State to implement the requirements of this legislation can be absorbed within existing budgeted resources” (13).
  • There is no reason to assume that the funds will have to bear the expense of hand-picking every stock, as an increasing number of companies and services are available to assist with the creation of a low-carbon portfolio (14). 

In conclusion, fossil fuels are a financially irresponsible investment, and divestment is the course of action that best reduces risk and volatility in pension funds. 

Asset managers overseeing 40 trillion dollars have chosen to shed their industry holdings, including Europe’s biggest pension fund, APB. CalPERS and CalSTRS would have generated an additional $11.9 billion and $5.5 billion respectively by 2019 had they divested in 2009 according to Corporate Knights. This is the equivalent of $6,072 per CalPERS member and $5,752 per CalSTRS member in 10 years. A recent Corporate Knights study of the Colorado Public Employees Retirement System shows a lost benefit of $4,184 per beneficiary between 2012-2022.

Divesting from fossil fuels isn’t just the right thing to do to protect Californian’s communities, jobs, and lives from climate chaos – it’s also the fiscally prudent path forward for California’s pension funds and for California’s retirees.

  1. Tom Sanzillo, Major investment advisors BlackRock and Meketa provide a fiduciary path through the energy transition, Institute for the Study of Energy Economics and Financial Analysis, March 22, 2021,
  2. Blackrock, Investment and Fiduciary Analysis for Potential Fossil Fuel Divestment – Phase Three Identification, Analysis and Evaluation of Prudent Strategies, p. 2,
  3. MSCI, MSCI ACWI ex Fossil Fuels (USD), Index Fact Sheet, last visited Apr. May 2, 2023,
  4. See note 1. 
  5. Arjan Trinks, Bert Scholtens, Machiel Mulder, Lammertjan Dam, Fossil Fuel Divestment and Portfolio Performance, Ecological Economics, Volume 146, 2018, Pages 740-748, ISSN 0921-8009,$11
  6. US Energy Information Administration, Crude oil prices forecast to decline beginning in the second half of 2023, Today in Energy, January 11, 2022, detail.php?id=55159. Accessed May 2, 2023.
  7. Randy Diamond, Green Coalition: Pension Plans Miss Billions by Not Divesting from Fossil Fuels, Chief Investment Officer, November 5, 2021; CA/CO Pension Funds Lost Billions on Fossil Fuels, Fossil Free California blog, November 11, 2019 (overview); the reports and underlying data for the CalPERS and CalSTRS reports are here,
  8. Sindre Carlsen, Jonathan Li with UC Berkeley Economics Prof. Clair Brown, Stranded Fossil Fuel Assets in the CalPERS Portfolio  –  Analysis, March 21, 2022, Report; Summary.
  9. Response of Bevis Longstreth To [NYC] RFI Regarding Investment and Fiduciary Analysis of Prudent Strategies For Divestment of Securities by Fossil Fuel Reserve Owners, April 3, 2018, p. 3,
  10. Auke Plantinga & Bert Scholtens (2021) The financial impact of fossil fuel divestment, Climate Policy, 21:1, 107-119, DOI: 10.1080/14693062.2020.1806020; Trinks et al (2017) Divesting Fossil Fuels: The Implications for Investment Portfolios, MPRA Paper No. 76383, University of Groningen, Netherlands.
  11. For example, CDPQ, a pension fund in Quebec with 1391 employees and 402 Billion in assets has divested from coal and had only one oil asset left to divest at the end of 2022. It has suffered no unusual losses. CDPQ 2022 Sustainable Investment Report,
  12. Blackrock, Investment and Fiduciary Analysis for Potential Fossil Fuel Divestment – Phase Three Identification, Analysis and Evaluation of Prudent Strategies, p. 14,
  13.  Fiscal Note, An Act To Require the State To Divest Itself of Assets Invested in the Fossil Fuel Industry 130th Maine Legislature, 5/14/2021,
  14. Tom Sanzillo, Dan Cohn, Connor Chung, Two Economies Collide, Competition, conflict, and the financial case for fossil fuel divestment, IEEFA, pp. 105-106,