California took a giant step toward a major divestment in fossil fuels on May 25 as the State Senate passed a bill that would divest the state’s two largest pension funds of an estimated $9 billion in holdings, sending it to the Assembly.
“If passed by the Assembly and signed into law, this bill will be a victory for the global movement to revoke the social license of the fossil fuel industry,” said author/activist Bill McKibben, co-founder of 350.org, and founder of Third Act. “No one wants their life savings used to make life on Earth harder,”
The two funds — CalPERS (California Public Employees’ Retirement System) and CalSTRS (California State Teachers’ Retirement System) are also the largest in the nation. The bill, SB 1173, would prohibit them from investing in the top 200 fossil fuel companies, require divestment of current holdings by 2030, and require annual reports on their divestment progress starting in 2024.
“The bill has definitely faced challenges in every single committee or floor hearing,” said Miriam Eide, coordinating director with Fossil Free California, which has been working on divesting these funds since around 2013, initially as a project of Bay Area 360.org. “It’s not been an easy vote to get through,” she said. “It’s taken a lot of work and a lot of mobilizing of our substantial coalition to get the votes all the way through.”
Her colleague, CJ Koepp, supplied some numbers. “Since the bill was introduced in February with the support of 127 unions, coalitions, and organizations, Californians have made thousands of calls, written over 17,000 letters, and organized dozens of meetings with legislators to advocate for SB 1173,” Koepp said.
“We have spent so many hours, skipping homework or hanging with friends, to work on this bill over the years,” said Raven Fonseca Jensen, 18-year-old climate activist with Youth vs. Apocalypse. “However, this win is nowhere near enough, and I hope that it can be a catalyst for the intense climate action that we absolutely need to have a livable planet.”
Raven is just one voice among many, said Eide. “We’ve had huge numbers of youth and teachers who have been mobilizing, saying, ‘Hey, you know what, fossil fuels are in my community, they’re at the detriment to my community, I myself have asthma, my family, someone has cancer,’ telling those personal stories, about why they do not want their pensions or their teachers’ pensions to be funding fossil fuels.”
A total of 1508 institutions, representing $40.43 trillion in assets, have already committed to fossil fuel divestment, according to the Global Divestment Commitments Database, maintained by Stand.earth and 350.org. These are classified into five categories, ranging from “fossil free” (with no current investments and committed to staying that way) to “coal only” (with a binding commitment to divest from all thermal coal companies). CalPERS and CalSTRS are both listed for their “coal only” divestments, while SB 1173 would move them into the “full” category—with a binding commitment to divest within a set timeline.
Faith-based organizations represent the largest share of disinvesting institutions, 34.4% of the total, followed by educational institutions (15.1%), philanthropic foundations (12.6%), pension funds (12.2%) and government (11.5%).
Fossil Free California began campaigning for the pension funds to divest in 2013, the same year that Cal State University San Francisco became the first public university to divest from fossil fuels. Cal State Long Beach followed the next year. From students to faculty, to public sector unions, pressure to divest the pension funds has been building from below ever since. Finally, last October, the entire CSU system announced it would divest — a total of $162 million.
But fund management has been resistant. Both CalPERS and CalSTRS have claimed that divestments would be costly — claiming that past actions have cost them $8 billion and $9 billion, respectively. But a recent report from Fossil Free California refutes these claims, drawing data from multiple sources. A key passage explains:
Since 2017, CalPERS consultant Wilshire and Associates has produced careful and thorough analyses of the impact of all divestments, both Board-directed and state-mandated. Wilshire and Associates reports show, in great detail, that the net effect of all divestments to date is a loss of $2.8 billion, almost all of which is attributable to tobacco divestment.
Looking at CalSTRS coal divestment record, the report found that “An initial $10,000 investment in the seven thermal coal companies from which CalSTRS divested in 2016-2017 would be worth about $6,975 in 2021. That means that by divesting its $9.8 million investment, CalSTRS avoided losing $3 million.” Over the same period, “At $17,691, CalSTRS portfolio performance outperformed standard benchmarks and dramatically outperformed thermal coal.” While CalSTRS still holds investments in four thermal coal companies, they also performed poorly, and divestment “would have improved the returns of the CalSTRS portfolio.”
The fate of coal is the fate of fossil fuels generally. In May 2021, the International Energy Agency issued a report, “Net Zero By 205,” which said there must be no investments in new fossil fuel supply projects starting in May 2021 in order to limit global warming to 1.5 degrees celsius and prevent serious climate disaster.
Events like Russia’s invasion of Ukraine, and resulting sanctions which have driven up the price of oil, can make fossil fuel investments seem lucrative in the short run, but the European Union’s response — aimed at freeing itself from Russia, primarily through faster transition to renewables — underscores the long-term inevitability of fossil fuels’ coming decline, as renewables grow increasingly cheaper and more plentiful.
Further confirmation comes from accounting firm Ernst & Young’s global Mobility Consumer Index (13,000 respondents across 18 countries) which found that a 52% majority of respondents planning to buy a new car in the next two years intend to buy a hybrid, plug-in hybrid, or pure electric car — up dramatically from only 11% in 2020.
The logic is simple, said Heidi Harmon, senior public affairs director of Let’s Green CA! and former mayor of San Luis Obispo. “A pension is an investment in the future. Investment in the fossil fuel industry is an investment in our demise.”
Update: As we went to press, Fossil Free California released a report revealing that CalPERS and CalSTRS voted to oppose climate action at major fossil fuel companies and financiers during the 2022 Annual General Meeting season. “This exposé is especially significant considering that the funds claim they’re engaging with the fossil fuel industry as stakeholders to mitigate climate change,” Koepp said, “but their shareholder activism is not only ineffective—it’s undermining climate action at oil, gas, and coal companies.”