As the race toward renewable energy and away from fossil fuels to address climate change heats up, more pension funds may look at divestment, willingly or otherwise.
According to a divestment commitment database maintained by Stand.earth, a climate action advocacy group, 1,591 organizations worldwide with a collective $40.51 trillion in assets have publicly committed to some level of fossil fuel divestment. Pension funds represent 11.7% of those commitments, compared with 35.8% from faith-based organizations, 15.7% from educational institutions and 11.9% from foundations.
The pressure on other pension funds, including the $456.7 billion California Public Employees' Retirement System, Sacramento, and the $307.2 billion California State Teachers' Retirement System, West Sacramento, to join that list is increasing from legislators in some states.
The boards of both California pension funds oppose pending legislation that would prevent new investments in fossil fuel companies and require divestment from such companies they hold byJuly 1, 2030.
CalPERS officials estimate that the transaction cost of divesting $9.4 billion in current holdings and reinvesting the capital into other investments would range between $75 million and $125 million. They and other pension fund investors also worry that divestment does not translate to better climate impacts, and would make it harder for investors alone or collectively to influence better behavior.
In Vermont, divestment legislation passed by the Senate and now before the House would require the Vermont Pension Investment Commission overseeing three pension funds to divest almost all fossil fuel company holdings by the end of 2030 and produce a divestment plan by Sept. 1, 2024. VPIC Chairman Thomas Golonka warned legislators that since the $5.5 billion Vermont State Retirement Systems, Montpelier, has only $1 billion in direct holdings and the rest in index funds that would have to be untangled or avoided, it would put Vermont at a significant disadvantage, while unwinding the funds' private market programs would have "a material and immediate impact on state and municipality budgets."
CalSTRS officials made a similar calculation about the pending legislation there. They calculated that if forced to divest companies getting more than 1% of revenue from fossil fuels — an estimated 159 companies worth $5.4 billion in holdings — it would create deviation from the benchmark, and those potential costs would increase CalSTRS' unfunded liability and lead to higher state contributions, they argued.