LA climate protest.

People gather on the lawn of Los Angeles City Hall as part of a global day of climate action Friday, September 23, 2022; Participants called on political leaders to divest from fossil fuels.

(Photo: Hans Gutknecht/MediaNews Group/Los Angeles Daily News via Getty Images)

Why California’s Public Employee Pension Funds Should Divest From Fossil Fuels

To date almost 1,600 institutions worldwide with over 40 trillion dollars in assets have divested from fossil fuel companies; CalPERS and CalSTRS should join them.

Senate Bill 252, which requires California’s two large public employee pensions funds, CalPERS and CalSTRS, to divest from the 100 top oil and gas companies by 2030, passed the state Senate in May. Divest means selling off any stock or bond holdings in these companies and not buying new fossil fuel stocks or bonds.

Divestment is a moral issue. We divested from companies doing business in Apartheid South Africa because we thought profiting from racial oppression was immoral. We divested from tobacco companies because knowingly selling and promoting a product that causes cancer is immoral. There is now a global fossil fuel divestment movement because fossil fuel companies are using their wealth and tremendous political power to block desperately needed climate change legislation—around the globe and right here in California.

In addition, like tobacco companies, the fossil fuel industry’s own scientists knew the harm their product was causing but the companies kept that knowledge secret and publicly denied it—even as they were extending the legs of drilling rigs to deal with sea level rise. Even today, fossil fuel companies are greenwashing rather than truly addressing climate change. Moreover, CalPERS unwittingly becomes party to that greenwashing, as when, for example, it promoted Exxon’s bogus net zero by 2050 claims to members.

When companies act this immorally and with such catastrophic consequences for human society and life on the planet, public pension funds should not engage with them as if they were good corporate citizens; they should instead divest.

A group of California coastal counties have sued 37 major oil companies for damages due to sea level rise. Their suit powerfully makes the moral case. Here are three quotes:

“Defendants have known for nearly 50 years that greenhouse gas pollution from their fossil fuel products has a significant impact on the Earth’s climate and sea levels.”

“With that knowledge, defendants took steps to protect their own assets from these threats through immense internal investment in research, infrastructure improvements, and plans to exploit new opportunities in a warming world.”

“Defendants’ conduct was so vile, base, and contemptible that it would be looked down upon and despised by reasonable people.”

You may be thinking this is all fine and well, but will divestment hurt pensioners? Fortunately, a number of studies indicate that divestment is financially prudent. For example, as the City of New York was considering divesting its three large retirement funds, it hired the financial consulting firms BlackRock and Meketa to independently write reports on divestment. Here is a quote from an article about the reports: “BlackRock and Meketa have separately concluded that investment funds have experienced no negative financial impacts from divesting from fossil fuels. In fact, they found evidence of modest improvement in fund returns.”

And SB 252 contains an “escape clause” such that if CalPERS thinks divesting from a fossil fuel company is not financially prudent, then it doesn’t have to divest.

What about engagement as an alternative strategy to divestment? Engagement is when owners of company stock try to get companies to change their practices through shareholder resolutions. There are several reasons why shareholder engagement, which can be a powerful strategy in some circumstances, is not likely to be effective in the case of fossil fuel companies and climate change.

First, what is needed, keeping the majority of fossil fuel reserves in the ground unburned, would represent astronomical financial losses to the fossil fuel industry. Not surprisingly then, the industry has fought tooth and nail against addressing climate change, and still claims today that all its reserves can and will be burned. Pope Francis put it this way, “Is it realistic to hope that those who are obsessed with maximizing profits will stop to reflect on the environmental damage which they will leave behind for future generations?”

Shareholder engagement promotes the image of fossil fuel companies as good corporate citizens, which actually strengthens their political power to fight climate legislation. This is exactly opposite the strategy of divestment, which aims to weaken the political power of fossil fuel companies by calling them out as bad actors, and thereby win climate legislation. Former Securities and Exchange Commission commissioner Bevis Longstreth in Climate Change and Investment in Fossil Fuel Companies: The Strategy of Engagement Won't Work said:

“Indeed, engagement is likely to assist Big Oil and Big Coal in postponing the day when governments limit the burning of fossil fuels … Engagement with institutional investors like Harvard gives the fossil fuel giants the protective cover they need to stretch out the transition process to renewables for as long as they can. It legitimizes talk over action.”

To date almost 1,600 institutions worldwide with over 40 trillion dollars in assets have divested from fossil fuel companies, including the state and city of New York retirement funds, the state of Maine, Quebec province, the Vatican, United Church of Christ, Episcopal Church USA, Unitarian Church, World Council of Churches, and the California State University and University of California systems. Senate Bill (SB) 252 now has 140 organizations offering official support including religious, environmental, and public health groups. Labor unions representing over 470,000 California workers have signed on in support of SB 252 including the California Faculty Association, California Federation of Teachers, AFSCME CA, California Nurses Association, and the ILWU.

In summary, when companies act this immorally and with such catastrophic consequences for human society and life on the planet, public pension funds should not engage with them as if they were good corporate citizens; they should instead divest. Arch Bishop Desmond Tutu said, “People of conscience need to break their ties with corporations financing the injustice of climate change.”

“It makes no sense to invest in companies that undermine our future,” he continued. “To serve as custodians of creation is not an empty title; it requires that we act, and with all the urgency this dire situation demands.”

The California Faculty Association is one of SB 252’s main sponsors, along with the nonprofit Fossil Free California. For more information on the bill, see

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