A photo of the California State Capitol building

Frequently Asked Questions – Senate Bill 252, The Fossil Fuel Divestment Act

What is SB 252?

Senate Bill (SB) 252 will prohibit the California Public Employees Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS) from investing in the 200 most carbon-intensive fossil fuel companies, and divest current holdings in those companies by 2031.

What is CalPERS?

The California Public Employees’ Retirement System is a California state government agency which manages pension and health benefits for close to 2 million California public employees, retirees and their families. Valued at $469 billion, CalPERS is the largest public pension fund in the U.S. and the 6th largest in the world. CalPERS has roughly $9.4 billion dollars of stock and bond investments in the top 200 coal, oil and gas production companies.

What is CalSTRS?

The California State Teachers’ Retirement System provides retirement benefits to California’s public school educators (prekindergarten through community college). As of 2023, CalSTRS is the largest educator-only pension fund in the world, and the second largest pension fund in the U.S. The market value of the CalSTRS investment portfolio was approximately $311.5 billion as of January 31, 2023.​​ CalSTRS holds $5.4 billion dollars of stock and bond investments in the top 200 coal, oil and gas production companies. CalSTRS holds investments in 159 of the 200 fossil-fuel industry companies that SB 252 would eliminate.

Who created SB 252?

SB 252 is authored by California Senator Lena Gonzalez, joined by Senator Scott Weiner and Senator Henry Stern.

And… Fossil Free California is the nonprofit sponsor of this bill, along with the California Faculty Association. We are building a powerful coalition to support it.

We are building broad support across California! The California Faculty Association is an early leader in our coalition, which also includes AFSCME California, California Nurses Association, CFT, Los Angeles College Faculty Guild, Oakland Education Association, United Educators of San Francisco among other unions. We’re in continuing talks with over a dozen unions, as well as 20+ cities and counties. Plus we’re building support from teacher associations, and we’re organizing with thousands of CalSTRS and CalPERS members.

There was a bill like SB 252 last year that passed all the way through the Senate. Why is this coalition so confident this bill will pass through the legislature and get the Governor’s signature in 2023?

In 2022, this bill was called SB 1173. It got all the way through the Senate. It was killed in the Assembly when Jim Cooper, the chair of the Assembly Committee on Public Employment and Retirement, refused to let the bill be heard. This year that committee has a new chair, Tina McKinnor. We are building a strong coalition, with great worker and union support, and we are working to ensure we have support from the Governor. We are optimistic that with the demonstrable power of this coalition and this campaign we will get this bill signed into law this year.

How much do CalPERS and CalSTRS have invested in fossil fuels?

CalPERS has roughly $9.4 billion dollars, and CalSTRS $5.4 billion dollars ($14.8 billion in all) of stock and bond investments in the top 200 coal, oil and gas production companies. These fossil fuel holdings represent less than 2% of their combined assets. CalSTRS reports investments in 159 of the 200 fossil-fuel industry companies that SB 252 would eliminate.

Beyond the divestment targets of SB 252 (CalPERS and CalSTRS’ holdings in the top 200 coal, oil and gas production companies), CalPERS and CalSTRS hold billions of dollars in additional fossil-fuel-related investments. Broadly speaking, CalPERS had roughly $30.4 billion dollars, and CalSTRS had $14.7 billion dollars of investments in the fossil fuel industry (fossil fuel companies plus fossil fuel support companies, pipelines, and gas and coal-fired electric utilities) – totaling $45.1 billion dollars – as of mid-2022.

How do CalPERS and CalSTRS constituency groups feel about fossil fuel divestment?

Close to 200,000 union members and beneficiaries of CalPERS and CalSTRS have passed fossil fuel divestment resolutions, including the United Teachers Los Angeles, the California Federation of Teachers, the California Faculty Association, and the Faculty Association of the California Community Colleges.

Why is divestment such an effective strategy?

The goal of divestment is to take away the social license of the fossil fuel industry, to diminish their political impact that slows legislation to address the climate crisis. The industry is the main brake on climate legislation in California and nationally. In the cases of divestment from the apartheid regime in South Africa and tobacco, divestment proved to be a very effective strategy for shifting political power to allow for change. Supporters of the fossil fuel industry have been fighting hard against divestment.

How did divestment campaigns get started, and what are some historical and recent divestment successes?

The first well known campaign to use the term “divestment” was in the movement to end Apartheid in South Africa in the 1980’s. When Nelson Mandela came to Oakland to thank activists for their many years of support he said that when he heard about the movement to divest from companies doing business in South Africa he knew his side would win. In addition to South Africa, divestment campaigns have targeted: tobacco, private prisons, gun manufacturers, and the government of Sudan. A 2013 study by researchers at Oxford University showed divestment to be an effective strategy to take away the social license to operate from those it targets.

Funds valued at $40.51 trillion have divested with a total of 1,559 institutions making up that number. Many colleges and universities have voted for divestment such as the California State University System, the University of California, Harvard, and Princeton. New York City, the Sovereign Wealth Fund of Norway, and the state of Maine have all divested from fossil fuels.

What have the experts said about the fiscal impacts of fossil fuel divestment on the fund?

According to former deputy comptroller for the State of New York, Tom Sanzillo, “Two major financial management firms, BlackRock and Meketa, have separately concluded that investment funds have experienced no negative financial impacts from divesting from fossil fuels. In fact, they found evidence of modest improvement in fund return… BlackRock and Meketa say divestment from fossil fuels improves, not weakens, investment returns.” whole article. In a pre-COVID study that compared the funds’ return if they had divested in 2009 and spread the investment across the rest of the portfolio compared to actual value in 2019, it was found that CalPERS would have been $11.9 billion richer, and CalSTRS would have gained an additional $5.5 billion.

Are fossil fuel investments significant parts of the funds?

Fossil fuel company investments (as defined by the bill) make up less than 2% of CalPERS and CalSTRS total holdings. As such, divestment will not decrease diversification or increase risk. Investments in the 200 largest producers of fossil fuels total $14.8 billion.

Some cities, counties, municipal districts and other institutions have asked us, “If we divest from fossil fuels, where could we move our money? What could we invest in that is fossil free?”

The good news is that every major investment house now has a menu of index funds to create portfolios that include climate sensitive stock and bond funds. These index funds are organized under headings such as Low Carbon, Decarbonized, Low Emissions, Paris compliant. These funds are diversified, profitable and capable. For example, CalSTRS has decided to move billions of dollars from its equity investments into the MSCI ACWI Low Carbon Target Index. CalSTRS estimates that using this index could reduce the emissions in its portfolio by up to 14%.

Why is the ‘engagement strategy’ that CalSTRS and CalPERS have pursued with fossil fuel companies so ineffective?

According to former SEC commissioner Bevis Longstreth, “Indeed, engagement is likely to assist Big Oil and Big Coal in postponing the day when governments limit the burning of fossil fuels. The International Energy Agency reckons that, if governments act to compel adherence to the “carbon budget” necessary to have a chance of holding the planet to only a 3.6° F (1.5°C) rise in temperature from pre-industrial levels, it will cause the fossil fuel industry to lose about $1 trillion a year. Engagement with institutional investors like Harvard gives the fossil fuel giants the protective cover they need to stretch out the transition process to renewables for as long as they can. It legitimizes talk over action….There are some ESG issues (i.e. environmental, social, and governance issues) where shareholder engagement has been tried and been successful. However, the closer one comes to trying to affect core business issues or issues involving the safety, security and compensation of officers and directors, the less successful engagement becomes. In fact it’s a bust. Thus, for example, trying to convince Phillip Morris to give up making cigarettes or Johnny Walker to abandon its distilleries will most certainly be a fool’s errand….It is for this reason that divestment became the tool of choice in addressing tobacco companies. And companies heavily engaged in profitable businesses in South Africa under apartheid. In regard to fossil fuel companies directly engaged in extractive activities, it is unrealistic to imagine them being swayed by shareholder arguments to get out of their core business of exploring for, extracting and selling carbon-emitting fuel.” For a more in depth set of responses to the shareholder engagement argument see this article.

Is CalSTRS and CalPERS Divestment aligned with Governor Newsom’s climate agenda?

The Governor’s Executive Order on Climate Change (EO N-19-19) calls on CalSTRS to “leverage the state’s $700 billion investment portfolio to advance California’s climate leadership, protect taxpayers, and support the creation of high-road jobs.” The single greatest step the pension funds could take would be to sell off its fossil fuel portfolio.

Will this bill support unions and help job growth?

Many labor unions support SB 252. The ones which have come out in opposition to the bill are almost all associated with the California Building and Construction Trades Council. According to Aaron Cantu in his study of how these two organizations have successfully killed climate bills in California, that council has a formal agreement with the Western States Petroleum Association to resist legislation that counter the interests of the fossil fuel industry. The industry has also consistently lied about the number of fossil fuel jobs in the state, according to Dan Bacher. There are no published studies that show that fossil fuel divestment has a negative impact on jobs. There is a body of literature on the economic impacts of divestment and none of it shows that it leads to job losses. However global and state climate policies require that the production of fossil fuels be phased out if we want a liveable planet.

The Western States Petroleum Association, or WSPA – the most powerful corporate lobbying group in Sacramento – claims that there are 368,000 jobs in the oil industry in California. But a just-released Food & Water Watch analysis counts just 22,000 jobs in the industry in California, based on Department of Labor statistics — and says this total has dropped 40% over the past decade. “Overall, oil and gas production account for barely one-tenth of 1% of all employment in California,” the analysis revealed.

How will divestment affect fossil fuel companies that have publicly announced clean energy programs?

SB252 requires CalPERS and CalSTRS to divest from the top 100 coal and the top 100 gas and oil producers. According to published reports by Climate Action 100+, none of these 200 companies has published a realistic plan to align with the Paris climate goals. Big Oil has focused on “reducing carbon intensity of output” rather than “reducing carbon emissions”, and their carbon and methane emissions have been increasing. A recent financial analysis of BP, Chevron, ExxonMobil and Shell found insignificant spending on clean energy, with their claims of clean energy not matching their actual investments and actions. In Congressional testimony and shareholder meetings, the company CEOs focus on extending their operations indefinitely by using carbon capture and biofuels, which are both heavily subsidized by Federal and California taxpayers and which cannot reliably meet climate goals.

Who has divested from fossil fuels

Worldwide over 1,500 institutions with over 40 trillion in assets have committed to divestment including:

  • Public employee pension funds: State and City of New York, State of Maine, the province of Quebec.
  • Universities: California State University and U.C. systems, Harvard, USC, and SF, Chico and Humboldt State.
  • Religious organizations: the Vatican, United Church of Christ, Episcopal Church USA, Unitarian Church, World Council of Churches.

Which organizations representing CalPERS unions or CalSTRS members and beneficiaries are calling for divestment?

We are building broad support across California! The California Faculty Association is a cosponsor of the legislation and our strong union support includes AFSCME California, California Nurses Association (CNA), CFT, Los Angeles College Faculty Guild, Oakland Education Association (OEA), and United Educators of San Francisco (UESF) among others. In addition, California Fossil Fuel Divestment Coalition now includes over 170 organizations such as 1000 Grandmothers, Alliance of Nurses for Healthy Environments, Black Women for Wellness, Breast Cancer Action, CALPIRG, Center for Biological Diversity, Courage Campaign, San Francisco Bay Physicians for Social Responsibility, Sierra Club of California, STAND.earth, The Greenlining Institute, and Youth Vs. Apocalypse.

Which California colleges are already divested? How can college students and college professors support California’s pension divestment movement?

The fossil fuel divestment movement was kicked off in 2013 with the work of students at Swarthmore College. In that same year, Bill McKibben published the influential article “Global Warming’s Terrifying Math” and went on a national tour to promote the idea of divestment as a strategy for taking political power from the fossil fuel industry. That same year, San Francisco State University became the first public institution to divest from some fossil fuels and the Foothill- De Anza Community College District became the first public institution to fully divest its foundation funds from fossil fuels. After seven years of advocacy from students, faculty, and staff, the University of California committed to fossil fuel divestment in 2019. The California State University system committed to divesting its foundation in 2021, the same year that saw divestment victories at Harvard and Princeton.

In 2020 the Faculty Association of the California Community Colleges passed a resolution supporting fossil fuel divestment and in 2022 it voted to support SB 1173 (an earlier bill, which like SB 252, would have divested CalPERS and CalSTRS). College union locals can pass resolutions to support SB 252, and they can work to activate their statewide union to work for passage of the bill.

Students can add momentum to SB 252 by: organizing campus clubs and departments in support; amplifying SB 252 on social media; organizing rallies on campus or joining us in Sacramento. You can join our coalition with your club or department here, or organize students to sign our petition (encourage students to give contact information that will work over the summer as well during the semester). We invite professors to join our CalSTRS volunteer team here.

What is the Social Cost of Carbon?

Divestment aims to decrease emissions of GHGs and toxics, which are the primary cause of climate change. These emissions impose a Social Cost of Carbon (SCC) upon society. There is widespread scientific consensus that the SCC will continue to increase annually unless we achieve deep decarbonization. Per California Air Resources Board, a total of 424 million MT (MMT) of carbon dioxide equivalent (CO2e) was emitted in 2017. The total annual Social Cost of Carbon from California emissions, (if you calculate based on $150 per metric ton of carbon dioxide equivalent) is $63,600,000,000, or $63.6 billion.

How does divestment minimize risk in CalPERS and CalSTRS Portfolios?

During the period from 30 June 2014 to 30 Nov. 2021, the largest fossil fuel funds had a negative total return (including dividends) in contrast to the positive total return of the SP500 and each of the other 8 GICS sectors. This confirms the financial risk of investing in fossil fuel energy. The global divestment initiative began in 2012, but did not develop much momentum until 2014. Also, scientific verification of climate change has increased substantially since 2014. California will benefit most by divesting promptly, before the burgeoning popularity of divesting triggers steeper losses.

The sector with the highest Beta (risk) and lowest Alpha (return relative to the SP500) is fossil fuel energy. Thus, all other sectors have a superior risk: reward ratio.

In contrast to the absence of published empirical research verifying the efficacy of engagement, there is a growing body of research on divestment from fossil fuel securities. Divestment, but not engagement, may be used to decrease the risks (e.g., Beta, poor returns, and climate) to a portfolio. Nearly all research finds that divestment from the fossil fuel sector either does not change total return or increases total return. Thus, it is a promising way of improving risk-adjusted returns and meeting fiduciary responsibilities.

Pension funds have mentioned a problem with “tracking errors.” What is a “tracking error?”

Pension funds typically watch how much their returns “track” a benchmark such as the MSCI All Country World Index. Tracking error is the percentage difference (plus or minus) between benchmark performance and the fund’s performance. If a fund diverges from a benchmark because it is doing better than the benchmark fund, a “tracking error” is a good thing.

Are CalPERS and CalSTRS currently in alignment with the goals of the Paris Climate Accord and California’s climate legislation and regulation?

The pension funds’ net-zero by 2050 pledges are not in alignment with California policy. The funds have not taken on the goal of being Paris-compliant or furthering the climate and climate finance goals of California legislation, regulations, and Executive Orders. Of the 200 largest fossil fuel producers the funds are invested in, zero have proven plans to achieve their aspirations of reaching net zero by 2050.

What is net zero? How do CalPERs’ and CalSTRS’ net zero pledges fall short of true divestment?
The debate over the cause of the current climate crisis is over. Greenhouse gas emissions, including carbon emissions, are warming our planet at an accelerating rate, and we need to lower the carbon content of the atmosphere to limit the warming and spiraling climate disruption. But how to do this?

Many scientists agree that the way to do this is to take immediate action to reduce carbon emissions in industrialized nations. This will only happen if we stop the extraction and burning of fossil fuels. Unfortunately, many political leaders have been deceived by a false narrative, which leads some to believe that we can rely on carbon capture and sequestration (CCS) technologies to remove much of the atmospheric carbon. Industrial leaders, and in particular the fossil fuel industry, are claiming that the solution is to achieve “Net Zero by 2050,” whereby we can balance ongoing emissions by recapturing them. Net Zero relies heavily on problematic, inadequate, and expensive technologies like CCS and CCUS (Carbon Capture, Utilization and Storage). Using carbon capture as a greenlight to extend the life of fossil fuel power plants and delay action is a significant financial and technical risk. Much of the thinking is based on myths about carbon capture, and carbon offsets.

How will passing SB 252 stop the fossil fuel industry’s damaging actions in California, like the $20 million the fossil fuel lobby spent to undercut SB 1137, the 2022 setbacks law?

Divesting CalPERs and CalSTRS of fossil fuel investments – which would reallocate about $14.8 billion – could create enormous momentum and set a clean investing standard among pension funds, banks and insurers internationally. The main effect of PERS/STRS divestment would be to influence other US public pension funds to divest, and the ripple effect of those divestments would be to collectively reduce the capital available to the fossil fuel industry. Draining the fossil fuel industry, (and consequently its think tanks and lobbyists), of their access to easy capital would also drain their pool of funds designated for interfering with California’s democratic processes, rulemaking, and laws. The less excess money this industry has, the less funds they can apply to misleading ad campaigns, signature-gathering under false pretense, and undercutting the widely-supported laws and regulations that protect Californians from the drilling, air pollution, and other harms of fossil fuel infrastructure operating in our communities.

What can I do to support SB 252?

First, sign the petition. Next, if you know or are part of an organization, join the coalition.

Once you sign on, we’ll be in touch with great opportunities, from writing to your Senator, to attending hearings, to building joyful movement art, to coming together for fun outdoor events like rallies with music.

We also welcome volunteers on our current teams: Union Team; Cities and Counties Team; CalSTRS Team; Research Team. You can sign up to volunteer here.

We need every Californian, and most especially, we need YOU to:

  • pass SB 252,
  • divest CalPERS from climate chaos, and
  • secure a resilient, healthy, future for all Californians.