Top US pension fund rejects calls for fossil fuel divestment

One of the largest public pension plans in the United States has rejected efforts by lawmakers to force it to sell its holdings in fossil fuel companies, warning that such demands would hurt the value of its members’ savings.

California’s $319 billion state teachers’ retirement system (Calstrs) has pushed back against a new California Senate bill that would bar it from holding stakes in oil and gas producers.

“Our policy is unequivocal that we oppose bills that mandate divestment,” Harry Keiley, chairman of Calstrs’ board, said in a statement this week.

The bill, unveiled in February, would prevent Calstrs and the $478 billion California Public Employees Retirement System (Calpers) – the largest public pension plan in the United States – from making new investments in businesses. of fossil fuels. It would also require the boards of both plans to liquidate any existing stakes in those companies by July 2027.

“Climate change affects all parts of California’s economy and environment,” the bill says. “The production of fossil fuels and the effects of climate change resulting from the use of fossil fuels all result in disproportionate negative impacts on low-income communities and communities of color.”

But the Calstrs board voted against the bill at its March meeting. “We all want to get to the same place, to take powerful action to fight climate change,” Keiley said. “We can do this and ensure a secure retirement for hardworking California teachers through our plan to leverage our relationships, coalitions and investments.”

Calstrs, which has 1 million members, measured its exposure to holdings that would be prohibited under the proposed bill by counting companies that generate more than 1% of their sales from fossil fuel reserves used in energy applications. .

Using such a definition, Calstrs said it invested in 174 potentially banned companies with a combined market value of around $4.1 billion. He warned that a forced divestment could have negative consequences for the fund.

“The fossil fuel divestment, combined with Calstrs’ existing divestments, would create about a 1% tracking error, or deviation from the benchmark,” Calstrs said.

“Potential costs resulting from tracking error would jeopardize Calstrs’ funding plan to achieve full funding for California’s public educators.”

The fund added that any cost resulting from a forced surrender would increase the plan’s liabilities and could also result in higher contributions for the state.

Calpers has not publicly disclosed its position on the new Senate bill.

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Push from California lawmakers to tackle climate change came months after the approval of fossil fuel divestment plans for several of New York’s largest pension plans, including the New City Employees’ Retirement System. York (NYCERS), the New York City teachers’ retirement system. York (TRS) and the New York City Board of Education Retirement System (BERS).

Beyond the United States, Norway’s center-right government in 2019 approved plans for the country’s billion-dollar sovereign wealth fund – the largest in the world – to divest about $7.5 billion in holdings of oil and gas companies.

But lawmakers around the world have differing views on the relative merits of divestment versus engagement, which means some big investors have retained stakes in fossil fuel companies in a bid to keep tabs on their agendas. environmental.

The $1.36 billion Japanese Government Investment Fund (GPIF), the world’s largest pension fund, prefers its fund managers to engage with companies on climate change rather than proceed immediately to a disinvestment.

Last year, a British government minister also urged pension funds not to dump the holdings of fossil fuel companies despite growing pressure on asset managers to divest themselves of “destroying” stocks. the planet”.

Dolores W. Simon