California pension funds have billions invested in fossil fuel companies named in state’s lawsuit

The two funds are resisting pressure from legislators and activists to shed their gas and oil holdings.

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SOURCEDeSmog Blog

Over the past month and a half month, California lawmakers have enacted a pair of climate disclosure bills and endorsed a global call to end the fossil fuel era. In September, the state sued five oil majors and the chief industry lobby group to hold them accountable for climate change. 

Meanwhile, the  California State Teachers’ Retirement System (CalSTRS) and California Public Employees’ Retirement System (CalPERS) — the nation’s two largest state public pension funds — are resisting calls to divest from fossil fuels, and legislation that would have directed the funds to divest has once again stalled.

CalSTRS and CalPERS collectively have over $4.3 billion invested in Chevron, BP, ExxonMobil, ConocoPhillips, and Shell, a new analysis from Stand.earth and Climate Safe Pensions Network has found. 

These are the same five companies named as defendants in the state of California’s climate lawsuit, along with the American Petroleum Institute. California hopes to make Big Oil compensate the state for the billions it will continue to spend responding to extreme flooding, coastal erosion, devastating wildfires, and other impacts of the climate crisis. 

“It makes no sense that on one hand California is suing five major oil companies for climate-related damages to the state, while at the same time our state public employee pension funds are investing over $4 billion in these very same companies,” Carlos Davidson, a member of the California Faculty Association and a CalPERS beneficiary, said to DeSmog in an email. “We should divest.”  

In January, California Sen. Lena Gonzalez (D-Long Beach) introduced legislation requiring both funds to divest from the 200 largest fossil fuel companies by the 2030s — holdings worth about $15 billion. Gonzalez’s office termed the investments “contradictory and incongruous actions that position the state as a leader in the fight against climate change, while simultaneously investing billions directly in the fossil fuel companies that are causing climate change.” 

While state senators passed the bill, known as SB 252, Assemblymember Tina McKinnor (D-Inglewood), head of the Assembly Committee on Public Employment and Retirement, blocked it from advancing in the lower house this year. In 2022 a similar bill also died in Assembly committee

Sen. Gonzalez has announced that her bill will be taken up again in the next session.

CalPERS and CalSTRS defend their fossil fuel investments. Representatives of the pension funds told DeSmog that if they sold off their shares in Big Oil, it would deprive the funds of influence over the companies.

“Divestment ignores the larger climate risks from different sectors that we are working to address, would divert resources away from our efforts to achieve net zero, and would force the sale of our shares to other investors who may not engage in reporting, transparency and the reduction of carbon emissions,” CalSTRS said in an emailed statement.

“Divestment would sever CalPERS ability to influence and affect positive change at these companies,” James Scullary, assistant division chief in the fund’s Office of Public Affairs, said in an emailed response to DeSmog. “The oil companies in question would easily replace CalPERS with new investors who are unlikely to have the same impact or commitment to a low-carbon future. As a result, divestment has little—if any—impact on a company’s operations and therefore does nothing to reduce greenhouse gas emissions.”

Yet in their annual filings with the U.S. Securities and Exchange Commission, some fossil fuel companies have warned that divestment poses a real business risk. Shell noted in its FY 2022 filing that if divestment continued, “it could have a material adverse effect on the price of our securities and our ability to access capital markets.” Chevron made a similar risk disclosure in its FY 2022 SEC filing.  

“We believe our members are best served by our continued advocacy and engagement with these companies to encourage the transition their business models to cleaner forms of energy,” Scullary said.

‘Dangerous lack of progress’

However, it does not appear that oil majors are making that transition. A recent analysis from the World Benchmarking Alliance, a nonprofit organization that assesses how well corporations are working towards the UN’s Sustainable Development Goals, found a “dangerous lack of progress” from the oil and gas sector towards preventing global warming from exceeding 1.5 degrees C,  the goal established in the 2015 Paris Agreement.

Shell, which announced in 2021 that it expected an annual decline in oil production of 1 to 2 percent through 2030, now says production will remain stable through the end of the decade, and that its spending on renewables will not increase. 

In 2020, BP said it was aiming to cut its emissions 30 to 40 percent by 2030. In February, it lowered that target to 20 to 30 percent.      

Campaigners also say that the funds seem to be ignoring the petroleum industry’s well-documented history of promoting climate denial. The companies have “been playing us for fools,” said Calif. Gov. Gavin Newsom during September’s Climate Week NYC, while discussing the state’s newly filed lawsuit.

“Exxon Mobil, Shell, Chevron, ConocoPhillips, and BP lead the industry – not only in pollution and global warming emissions – but in deception,” said Miriam Eide, executive director of Fossil Free California.  In 2022, the group released a report finding that the funds had misled state legislators by exaggerating the costs of pulling out of fossil fuel investments. “Now is the time to correct the course of California’s pension funds and align them with the climate leadership of the rest of the state,” Eide said.

According to a study published in June by researchers at the University of Waterloo, CalPERS and CalSTRS have lost $9.6 billion over the past decade on their fossil fuel investments. 

If the funds shed their fossil fuel investments, it would be “an act that could actually help them financially,” said Anaya Sayal, coordinator of the Divest CALSTRS campaign at Youth vs Apocalypse, a San Francisco Bay Area climate justice group, “and protect the lives of countless innocent people that they’ve been directly hurting with their investments.”

Rori Abernethy, a California public school teacher and CalSTRS member, hopes that the fund will be “fiscally responsible and join other pensions in divesting from fossil fuels.” 

In 2020, New York State’s public pension fund announced it would shed many of its fossil fuel stocks by 2025, and other investments contributing to climate change by 2040. Maine enacted a law in 2021 that commits the state’s pension system to divest from the petroleum industry by 2026. Also in 2021, New York City announced that three of its five public pension funds had dropped $3 billion in fossil fuel investments.

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