Fresh from victory after California Gov. Edmund G. Brown Jr. signed legislation that will likely result in the nation's two largest pension plans CalPERS and CalSTRS divesting of coal company holdings, activist groups plan to step up efforts to urge the California plans and others worldwide to sell all fossil fuel holdings.
“Now we must divest from the rest,” said Robert Silvey, a spokes-man for Fossil Free California, in an interview. “Oil and gas companies are bad investments too: bad for human health, bad for the environment, and bad for the portfolio.”
But environmentalists will have a major fight on their hands. Officials of the $291 billion California Public Employees' Retirement System, Sacramento, and the $184 billion California State Teachers' Retirement System, West Sacramento, insist that engagement is the best approach to getting better environmental practices from the companies — which requires the pension funds to keep their stock holdings in those companies.
The actions of the two plans, often leaders in shareholder corporate activism among institutional asset owners in the U.S., could help determine what actions other institutional investors take towards their fossil fuel holdings.
The stakes are high for CalPERS and CalSTRS, for activists and for the entire fossil fuel industry.
The new coal divesture rules for CalPERS and CalSTRS, which require the systems to engage coal companies to move toward cleaner power generation before selling coal stocks, comes at the same time that the number of institutional investors involved in divestment efforts is increasing.
A total of 436 institutional investors and 2,040 individuals representing more than $2.6 trillion in assets globally divested fossil fuel stocks as of mid-September 2015, compared with 181 institutional investors and 656 individuals representing $50 billion a year earlier, according to a report by philanthropy consulting firm Arabella Advisors, Washington.
But the firm's report does not break down whether investors divested just coal holdings or all fossil fuel holdings.
Large pension plans globally that have chosen to divest have focused on coal, said Ryan Strode, Arabella director who is based in Chicago.
He said the fact that coal companies have seen big declines in over the past five years and that the coal industry raises the biggest environmental concerns among all fossil fuel sectors has made it an easier decision to choose to divest than oil and gas holdings.
“Institutional investors make decisions about investments based on their long-term viability, and right now the markets are showing that coal stocks simply aren't economically viable over the long term,” said Shanna Cleveland, a senior manager in charge of the carbon asset risk initiative at Ceres, a Boston-based organization that works with asset owners and corporations on sustainability issues.
Ms. Cleveland said a key factor in determining whether asset owners will divest of oil and gas stocks is their long-term assessment of price appreciation in that sector.
While oil and gas stocks may have been hit hard in the last nine months, she said, “that is just a snapshot in time” and the debate over the long-term worth of the stocks is ongoing.