A new study shows that the two largest pension funds in the US—the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS)—as well as the Colorado Public Employees’ Retirement Association, combined missed out on $19 billion in investment returns over the last decade by investing in fossil fuel stocks.
The study is the latest salvo by environmentalists in their battle to convince the large pension funds to divest their portfolios of the stocks of oil and gas companies, something the pension systems refuse to do.
The report by a coalition of environmental groups, which includes Fossil Free California, Fossil Free PERA and Corporate Knights, a media and research organization with an environmental bent, does highlight the fact that energy stocks have seen the worst performance of any of the S&P 500 sectors for more than 10 years.
It found that the $380 billion CalPERS would have generated an estimated additional $11.9 billion in investment returns had the funds divested of fossil fuel stocks a decade ago. CalPERS is the largest US pension system by assets under management; CalSTRS is No. 2.
The study found that the missed returns for CalSTRS were also substantial. The $238 billion system would have gained an additional $5.5 billion during the 10-year period.
The third system, the $45 billion Colorado PERA, missed an estimated $1.77 billion during the 10-year period, the report found.
The study highlights “that large fossil fuel companies pulled down overall performance, while technology, health care, retail, and entertainment boosted performance, the groups said.
The coalition also renewed calls for the pension systems to divest of fossil fuel stocks on climate change grounds.
No major state pension system in the US has divested of fossil fuel stocks, although advocates have had a little better luck with foundations and endowments. The largest endowment to divest of fossil fuel stocks is the University of California Regents, with more than $13 billion in assets under management. The approximate $70 billion UC pension system is also in the process of divesting of fossil fuel stocks over a five-year period.
“Cherry-picking selective time periods to analyze investments and then making broad, sweeping conclusions about how those investments will perform in the future does little to inform the discussion or address the issue of climate risk,” said CalPERS spokeswoman Megan White in an emailed statement.
White said that CalPERS does believe that climate change presents a “systemic risk” to the pension systems portfolio.
CalPERS is known in institutional investing circles for its engagement of corporations. It aims to help transform fossil fuel companies to a cleaner energy future. Climate advocates, however, want a more aggressive divestment plan now: dumping the fossil fuel stocks pension plans hold.
White said the pension system supports efforts to limit global temperature increases to well below 2 degrees Celsius, in accordance with 2015 global Paris Climate Agreement. President Trump is pulling the US out of the agreement, arguing it puts the country at a disadvantage economically.
White said CalPERS focuses on three key areas in its work on climate change, “advocating for policies and regulations to protect investors; integrating energy efficiency to increase the long-term value of our holdings; and engaging with global investors and businesses.”
CalSTRS spokeswoman Vanessa Garcia said CalSTRS doesn’t base investment decisions on short-term trends and favors a policy of engagement with fossil fuel companies.
“By engaging with policymakers and companies, and analyzing a broad range of research and data, CalSTRS will manage climate risk and find the best investments that help deliver climate solutions,” she said.
Colorado’s PERA also rejected the plans to divest from fossil fuel stocks.
“The best way we can serve those who serve Colorado is to keep the investment program away from politics and focused on sound economics,” said Ron Baker, executive director of Colorado PERA in a statement. “Additionally, we strongly believe that engagement is a more effective than divestment.”
Corporate Knights said in a statement that to determine the financial impact of fossil fuels on the three pension funds, it analyzed the funds’ holdings, weights and valuations for each of the past 10 years, from July 1, 2009, to June 30, 2019.
Corporate Knights said it then used publicly disclosed information to compare the actual investment returns of the pension system’s equity portfolio with those of a fossil fuel-free version (no oil, gas, or coal stocks).
The Oil, Gas and Consumable Fuels sector of the S&P 500 saw a 72.47% decline in the 10-year period and the Energy Equipment and Services sector saw a 17.57% loss.
In comparison, the median of all S&P sectors saw investment gains of 266.36% during the decade-long period.
The report found the pension funds missed investment gains of $6,072 per member of CalPERS, $5,572 per member of CalSTRS, and $2,900 per member of Colorado PERA.