Climate activists and retirees are advocating for divestment from fossil fuel companies in retirement funds. The push for divestment is gaining traction in Maine, New York, and the University of California, and now it may be coming to more pensions, including California’s state workers and teachers.
California Legislature’s Consideration: The California Legislature is reviewing a bill that would require pension funds for state workers and teachers to sell their holdings in the 200 largest publicly traded fossil fuel companies by July 2031. The bill also aims to prohibit new investments in these companies starting in 2024.
Impact on Pension Funds: The California Public Employees’ Retirement System (CalPERS) is the largest public pension fund in the United States, with around $459 billion in assets. The California State Teachers’ Retirement System (CalSTRS) is the second-largest public pension fund. Together, these funds cover over 3 million Californians and their families.
Divestment Advocates’ Perspective: Supporters of the bill argue that it is crucial for California to align its investments with its climate policies. They aim to hold fossil fuel companies accountable for their actions and weaken their political influence by discouraging politicians from accepting their money.
Concerns from Pension Fund Leadership: The CEOs of CalPERS and CalSTRS, Marcie Frost, express reservations about divestment. They argue that investment decisions should be made based on financial considerations rather than personal values or morals. They fear that divestment could negatively impact investment returns and hinder the ability to meet retirees’ obligations.
Financial Costs and Performance: Opponents of divestment, including the pension fund leadership, argue that selling fossil fuel holdings could result in lower investment returns. According to estimates, divestment could cost the state worker pension fund an additional $327.6 million per year for 20 years to meet retiree obligations. However, studies have shown that divested portfolios have not significantly underperformed over the long term.
Fiduciary Duty and Legal Concerns: Pension funds have a fiduciary duty to act in the best interest of their members. Some argue that requiring divestment may conflict with this duty. Legal challenges related to fiduciary responsibility have already arisen in other divestment efforts.
Future Outlook: The bill has an escape clause, allowing pension funds to maintain their investments if divestment conflicts with their fiduciary duties. The outcome will ultimately depend on the decision of the pension funds themselves. Advocates believe that even if divestment does not occur, the political impact of the legislature’s vote would still be significant.
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