How Much Could CalPERS Lose to Fossil Fuels?

As government regulations, corporate policy initiatives, pressure from climate activists, and market forces constrain the production and consumption of coal, natural gas, and oil, the fossil fuel industry faces enormous losses when their proved reserves become stranded assets.  Fossil fuel companies cannot recover their investments in locating and developing new reserves if these reserves cannot be extracted and sold.

CalPERS’ investments in the fossil fuel industry share this risk. In June 2018 CalPERS’ investments in fossil fuel producers and services totaled $13.4 billion (3.8% of its 2018 portfolio). In the most recent publicly available CalPERS portfolio (June 2019), CalPERS fossil fuel holdings were worth less than in 2018: $12.6 billion in fossil fuel producers and services (3.35% of 2019 portfolio). These holdings present CalPERS with large financial risks because of the uncertainties in the future of the fossil fuel industry.

Global policy: the carbon budget

The Paris Agreement set a goal of keeping global temperatures below a 2°C increase from pre-industrial levels. The carbon budget needed to achieve this goal requires that 80 percent of coal reserves, 50 percent of natural gas reserves, and 33 percent of oil reserves must go unburned. As governments shift the energy market from fossil fuels to carbon-free energy sources, up to half of existing reserves could become stranded assets, and investors have not fully accounted for the reduced future revenues. The likelihood of stranded assets has severe implications for the stock prices of companies with significant reserves.

Fossil Free Indexes‘ (FFI) Carbon Underground 200 (CU200) list provides data on fossil fuel reserves. The CU200 ranks the top 100 coal companies and the top 100 oil and gas companies by the size of their proved reserves. Proved reserves are fossil fuel reserves that are 90% likely to be recoverable. CalPERS’ 2018 portfolio had significant investments in the CU200 companies: $1.46 billion in 44 of the top 100 coal companies, and $7.27 billion in 85 of the top 100 oil and gas companies. These investments made up 2.5% of the 2018 portfolio. In the 2019 portfolio, CalPERS had $1.4 billion invested in 51 of the top 100 coal companies, and $4.67 billion invested in 85 of the top 100 oil and gas companies. This made up 1.61% of the 2019 portfolio.

Assuming countries take action to stay under a 2°C increase, Figure 1 estimates the total market value of the fossil fuel reserves of the 129 CU200 companies owned by CalPERS. The 2018 market value of reserves that are at risk of becoming stranded is a breathtaking $9.45 trillion. CalPERS’ investments represent a small but meaningful fraction of this total.


Market forces: competition from renewables

In addition to government policies, market forces are also major drivers contributing to stranded assets in the fossil fuel industry. The high costs of fossil fuel energy compared to renewable energy has resulted in reduced demand, especially for coal over time. Demand also responds to macro economic conditions: demand for energy fell during the 2008 recession. During the recent economic shutdown from the pandemic, fossil fuel energy demand fell precipitously, but demand for renewable energy actually increased.

The downward trend in fossil fuel demand leads to stranded assets as companies fail to meet sales expectations. As shown by Figure 2, coal power generation and demand is far past its peak in the United States and Europe. Only in Asia is the use of coal still growing, but BloombergNEF projects that in 2026 coal will reach its peak global demand. This does not bode well for CalPERS’ $1.46 billion investment in CU100 coal companies, because stock prices are based on investors’ expectations with the timing uncertain.

As for oil and natural gas, Carbon Tracker predicts that fossil fuels will reach their peak power generation and demand in the 2020’s. Fossil fuel analytics company Rystad Energy reports that the COVID-19 pandemic, which led to a crash in crude oil prices as demand fell  dramatically while oil producing countries refused to lower production, will likely cause fossil fuel demand to peak sooner than expected. Rystad Energy estimates that 282 billion barrels of oil will no longer be extracted as exploration efforts are reduced in response to the crisis.

Some fossil fuel companies are already declaring some assets as stranded. Citing the deteriorating economic situation caused by the COVID-19 pandemic and climate change, BP wrote off $17.5 billion in assets and Royal Dutch Shell wrote off $22 billion in assets in June 2020. In its 2018 portfolio, CalPERS owned $409 million in BP stock and $873 million in Royal Dutch Shell stock. As companies write off stranded assets, financial markets will adjust and lower the companies’ stock prices, lowering CalPERS’ returns.

Increased competition from renewables also lowers demand for fossil fuels. BloombergNEF finds that renewables are much cheaper now than they were in the past and that renewable prices are projected to “undercut commissioned coal and gas by 2030”. Since 2010, the cost of solar energy has declined by 85%, the cost of wind energy has declined by 49%, and the cost of lithium-ion batteries has declined by 85%. By 2050, renewables are projected to produce 62% of global power generation. These projections suggest that fossil fuels will have a greatly diminished share of the energy market, which will lead to losses for investors should the fossil fuel industry fail to pivot.

The value of CalPERS’ share in potential stranded fossil fuel assets

Using data on fossil fuel proved reserves from FFI, the Paris Agreement carbon budget, and fossil fuel prices from the EIA, we estimate that CalPERS’ 2018 portfolio had $27 billion in Stranded Fossil Fuel Assets (SFFA) from its share in CU200 companies. As shown in Figure 3, if CalPERS holdings in CU200 companies remain unchanged, the value of SFFA is expected to increase to $33.4 billion in 2030 and $31.9 billion in 2050 due to projected changes in oil and natural gas prices. The estimated price of coal remains steady 2018-2030, then declines.

Figure 3: Estimated Value of CalPERS 2018-2050 Stranded Fossil Fuel Assets

Natural Gas$5,680,955,498$9,119,928,559$11,209,912,187

The top 10 contributors to CalPERS stranded assets

Figures 4 and 5 show the top 10 contributors to CalPERS’ 2018 SFFA. For coal, China Shenhua, BHP, and Glencore are the top contributors. CalPERS has a share of $4 billion in SFFA from China Shenhua alone which comes from the company’s huge coal reserves (12.2 gigatons of coal) and CalPERS’ 0.64% share in the company.

For oil, Gazprom, BP, Royal Dutch Shell, and Exxon are the biggest contributors to CalPERS’ SFFA. CalPERS’ 0.2% share in Gazprom alone contributed over $3.5 billion to its SFFA value because of Gazprom’s massive oil reserves (81.67 billion barrels of oil). Finally, for natural gas, BP, Lukoil, Exxon, and Royal Dutch Shell are the biggest contributors. CalPERS’ 1.45% share in BP and BP’s 84 billion therms of natural gas reserves add up to $1.8 billion SFFA value. By staying invested in these companies, CalPERS directly exposes itself to significant financial risks. 

Figure 4: Top 10 Companies by Contribution to CalPERS 2018 SFFA

Figure 5: 2018 Market Value of CalPERS’ Shares in Top 10 SFFA Contributors and CalPERS Share of Potential Stranded Reserves

CompanyMarket ValueCalPERS Share of Stranded Reserves (Mt of CO2)2018 Estimated Financial Value of Stranded Assets (based on % owned)
China Shenhua Energy$75,303,021113.87$3,986,726,556
Royal Dutch Shell$872,291,2079.58$915,079,922

Despite having substantial assets and experience in the energy industry, fossil fuel companies have not placed themselves in a strong position to pivot to renewables or other alternative products and services. Data from the International Energy Agency (IEA) show that the carbon majors and other large fossil fuel companies like Gazprom, Lukoil, and Rosneft have meager capital investments in renewables projects. In 2015, only 0.5% of the carbon majors’ capital investments were in renewables. This figure has risen slowly to 0.7% in 2016-2018 and 0.8% in 2019. By investing so little in renewable energy, fossil fuel companies expose themselves to huge risks as the energy market shifts to renewables.

By staying invested in the fossil fuel industry, CalPERS exposes itself to major stranded asset risks as a result of government regulations and market forces. This risk will only grow in the future, which makes it financially prudent to divest sooner rather than later.


  1. ms w on October 13, 2020 at 10:03 pm

    Dear Calpers,
    Most of the people in CALPERS care about people, the environment and everything around us.
    What in the world are you doing by investing in coal and oil ?
    Get with it and invest in things in the now and future that will will sustain us and take care of us
    and love us. Come from love. Many in Calpers came from love with their work in schools your
    investment is opposite to our cause. And why CAN NOT I BE IN TOUCH WITH THOSE IN CALPERS

  2. Miriam Eide on October 14, 2020 at 5:45 pm

    Ms W,

    Thank you so much for your letter to CalPERS. If you have a moment, it would be great to ensure that they see your message by sending your reflection with a link to the article to