Southern California investors sometimes ask financial planner Mitchell Kraus, with Santa Monica-based Capital Intelligence Associates, to make sure they aren’t backing gun makers or for-profit prisons. But by far, Kraus said, the most common request from local clients concerned about “voting with their dollars” is to create portfolios that don’t support fossil fuel companies.
“There’s definitely been an increase over the years in people who are interested in that,” said Kraus, who’s been a wealth manager for three decades.
The fossil fuel divestment movement kicked off 11 years ago with a group of student activists at Pennsylvania’s Swarthmore College. It gained real momentum later that year, when journalist Bill McKibben published a Rolling Stone article that painted a dire picture of the Earth’s future if we didn’t take serious steps to stop burning fossil fuels.
Today, nearly 1,600 institutions with more than $40.5 trillion in assets — from the UC system to the state of Maine to the Vatican — have committed to divesting from fossil fuels. In Southern California, records kept by the Sierra Club’s divestment campaign show the cities of Los Angeles, Irvine, Laguna Beach, San Diego, Encinitas and Santa Monica, along with San Diego County, all have committed to some level of fossil fuel divestment.
California soon could join that list.
A bill that would force the state’s two largest public pension funds to stop investing in major fossil fuel companies just passed the Senate. If Senate Bill 252 passes out of the Assembly this summer and is signed by Gov. Gavin Newsom, pension funds for California’s teachers, with CalSTRS, and public employees, with CalPERS, would be banned from making new investments in fossil fuel companies starting next year and would have to unwind all such investments by 2031.
There also are new tools available to empower individuals to assess whether their own retirement plans, banking choices and other investments are bolstering fossil fuel companies, and to help them make changes as they see fit.
“Where the capital flows is where the companies will grow,” said Andrew Behar, head of As You Sow, a nonprofit that helps people invest in line with their values. “And that is how you actually shift an economy.”
In looking at past divestment campaigns, many researchers argue such movements have done more to mobilize activists and advance messaging than to have serious financial impacts on targeted industries or countries. Boards for CalSTRS and CalPERS cited such research when they voted to oppose forced divestment, also arguing it could hamper returns for employees.
But at least some research suggests investors would have seen similar or better returns over the past decade if they’d divested from fossil fuel stocks. And advocates insist such efforts can limit the money that fossil fuel companies and supporters can use to build new projects or push for favorable legislation. They point, for example, to the $20 million in lobbying money recently spent by oil drillers to turn a legally mandated buffer zone between homes and oil wells into a referendum that will appear on next year’s ballot.
“A lot of these companies don’t really see the human value behind small towns like Kettleman City,” said Miguel Alatorre, who lives in the small Central Valley town that’s dotted with oil wells and who helps lead the Fossil Free California movement.
“I think it’s really important that we hit them where the bad guys feel it, which is their pockets.”
Prevalence is clear
Retirement plans offered by major corporations often have around 8% of their portfolio invested in fossil fuels, said Behar, whose nonprofit has analyzed plans available to employees at dozens of companies, from Adobe to Whole Foods Market.
Some corporations offer at least one plan option with a sustainability mandate. Amazon, for example, offers a plan that scores a B on As You Sow’s rating for fossil fuel support, while the company’s other 26 plan options all earn Fs. In total, the nonprofit says Amazon’s retirement plans have more than $1 billion invested in fossil fuels. The Walt Disney Company also has one plan that scores a C for fossil fuels, with $672 million invested in the industry.
In those cases, Behar said, employees can typically let their money do the talking with one click on their keyboard by switching to the more sustainable plan.
Other companies — such as Airbnb, Netflix and Comcast — don’t offer any retirement plans with commitments to sustainability. For those workers, Behar’s nonprofit has tools to walk them through petitioning their employer to start offering such options. And the nonprofit’s Fossil Free Funds tool allows anyone to search their funds by name, ticker number or fund manager to see how their money is invested.
“You’ve got to know what you own to own what you want,” Behar said. “So we want all the employees of every company to be asking these questions about ‘why is my hard-earned money, why is my power, going toward my own destruction?’”
California’s funds account for nearly 2% of public pension money invested in the top 200 coal, oil and gas production companies targeted under SB 252, which was introduced by state Sen. Lena Gonzalez, D-Long Beach. That’s $9.4 billion for CalPERS and $5.4 billion for CalSTRS, with the teachers’ retirement plan now holding investments in 159 of the top 200 fossil fuel companies.
The funds also are big backers of oil-related investments. Fossil Free California estimates state pensions have $44.2 billion combined invested in fossil fuel companies along with fossil fuel support companies, pipelines and gas and coal-fired electric utilities.
A number of labor groups whose members have retirements through those pension plans have passed resolutions supporting fossil fuel divestment. That includes United Teachers Los Angeles, the California Federation of Teachers, the California Faculty Association and the Faculty Association of the California Community Colleges, which are among more than 130 organizations on the record supporting SB 252.
At the California Teachers Association conference, Alatorre said he spoke with educators who support divesting their pensions from fossil fuels because they believe it will have a positive long-term impact on their students.
“Students already have a tough time attending school for various reasons as it is, and now they have the burden of climate chaos on top of that,” Alatorre said.
However, boards for both pension funds have voted to oppose the bill — just as they did when an identical bill from Gonzalez made its way through the legislature last year. That bill also passed the Senate before Assemblyman Jim Cooper, D-Elk Grove, who then chaired the Assembly Public Employment and Retirement Committee declined to let it go forward for a vote in the full Assembly.
Assemblywoman Tina McKinnor, D-Inglewood, is the new chair on that committee, which again is expected to debate SB 252 before it can advance for an Assembly vote.
The question is whether McKinnor and other Assembly members are convinced by advocates’ arguments that divestment can indeed hamper oil companies without harming public employee pensions.
Impacts debated
Advocates of the push to get people, agencies and companies to ditch fossil fuel investments often point to two other major divestment campaigns as evidence of the impact such efforts can have.
First was a movement that targeted the apartheid regime in South Africa in the 1970s and ’80s. As with the fossil fuel campaign, the apartheid divestment effort largely started at universities. Eventually, governments and major companies such as General Motors opted to halt all investments into South Africa until the racist policy ended and Nelson Mandella was freed.
Both changes happened in the early 1990s. Researchers say the divestment campaign clearly helped to isolate South Africa and put a spotlight on what was happening there. But a 1995 analysis by UCLA economists found the campaign’s impact wasn’t financial, with “little discernible effect either on the valuation of banks and corporations with South African operations or on the South African financial markets.”
Findings are similar with the tobacco divestment movement of the 1980s and ’90s. Legal challenges and policy changes are generally credited with changing the tide against once-powerful tobacco companies, which Kraus noted once outperformed just about every other asset class on the market. But since the divestment movement clearly helped drive some of those policy changes, advocates argue it had at least an indirect impact on the tobacco industry’s capital while also stigmatizing tobacco companies and taking away their social license to operate.
One concern with divestment campaigns is that any stocks sold by climate-minded entities will simply be snatched up by those who don’t care about protecting the planet. In that way, some divestment opponents argue, the effort could end up doing more harm than good.
“The companies in question can easily replace CalPERS with new investors, ones who are unlikely to speak up as loudly or as consistently as we have about the urgent need to move toward a low-carbon economy,” said Marcie Frost, chief executive for CalPERS, in explaining why her fund’s leadership opposes forced divestment.
But if oil companies don’t face any financial liability from divestment, Behar asked, why would they feel the need to list the movement as a “known material risk” in documents they file with the Securities and Exchange Commission?
Given that CalPERS and CalSTRS are the nation’s largest and second-largest public pension funds, respectively, Alatorre believes oil companies will take notice if they pull all funding.
“They’re going to feel the financial burden of losing the billions of dollars that CalSTRS and CalPERS has invested in things that are killing community members like myself and others,” he said. And he’s hopeful that divestment might make oil companies struggle to continue last year’s pattern of spending $34 million on lobbying in California.
The other major concern divestment opponents cite is whether pulling investments from profitable oil companies will lower their returns or otherwise put their funds at risk. If other investments prove less profitable, CalPERS leadership says they’d have to offset those losses with employer and employee contributions. And, already, neither of California’s public pensions is fully funded.
But divestment advocates point to recent studies done by major financial management firms BlackRock and Meketa, which separately concluded that not only have investment funds held their value after divesting from fossil fuels, some showed modest improvement in fund return.
CalPERS would have generated an estimated $11.9 billion more between 2009 and 2019 had the fund divested from fossil fuels, according to a study from Corporate Knights. And the research firm found CalSTRS would have generated an estimated additional $5.5 billion in value had it divested during that decade.
“It just shows that there’s an opportunity cost to not divesting,” said Miriam Eide, coordinating director for Fossil Free California. “They’re becoming big risks in terms of investments, and so we want to see the pensions get out of that before it’s too late.”
While oil and gas companies have been raking in record profits in the past 18 months, Behar argued that’s largely due to the war in Ukraine and to price gouging. He added that as California and other places pass rules to phase out the sales of gas-powered cars, and to work out details of a gas price-gouging measure, volatility for these sectors is only going to increase.
Kraus agreed, saying in general that he believes “moving towards a greener portfolio will create more long-term returns.”
And, Behar noted, that’s all without trying to factor in the costs of unchecked climate change. Already, new environmental conditions are causing more extreme weather, catastrophic wildfires, insurance issues and a host of other expensive problems.
“How is your retirement secure when your home is on fire? How is your retirement secure when you can’t breathe the air outside?” Alatorre asked.
“The best time for public pension divestment was 10 years ago. The second best time is 2023.”
Source: Orange County Register
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