California leaders embrace fossil-fuel divestment

Actions taken in recent days by the University of California Board of Regents, Gov. Gavin Newsom and state Treasurer Fiona Ma have ushered in a new era of pension divestment to take a stand against fossil fuels.

Jagdeep Singh Bachher, UC’s chief investment officer and treasurer, and Richard Sherman, chair of the UC Board of Regents’ Investments Committee, announced last week that the university’s $13.4 billion endowment will be free of any investments in fossil fuels by month’s end and that UC’s $70 billion pension fund will also end its last such investment in coming months. 

Several UC regents, the UC Academic Senate and other faculty groups have long since called for such divestment as an obvious step in an era in which fossil fuels are a major source of the green-house gases believed to contribute to global warming. But Bachher and Sherman also said that fossil-fuel investments – long a staple of hedge funds and pension funds alike – were no longer safe, given the rapid emergence of alternative energy sources and growing opposition to reliance on oil, natural gas and coal.

Oil company investments seen as risky

Newsom also cited both environmental concerns and financial risk on Friday in signing an executive order directing the California Public Employees’ Retirement System, which has $380 billion in investment assets, and the California State Teachers’ Retirement System, which has holdings of $237 billion, to transition to a new investment model that drops investments in fossil fuels.

Newsom’s office said he would work with CalPERS and CalSTRS on a mission statement that establishes “a timeline and criteria to shift investments to companies and industry sectors that have greater growth potential based on their focus of adapting to and mitigating the impacts of climate change.” 

The governor said California as a state had to be all-in in the fight to stop the planet’s warming.

“How we meet this moment will define our state – and country – for decades to come, just as the emergence of the internet defined our economy over the past few decades,” Newsom said in a news release. “We have to get ahead of this and align our state investments, our purchasing power and our transportation and housing policies to be ready to meet this moment head-on.”

State Treasurer Fiona Ma, who is a member of both the CalPERS and CalSTRS boards, foreshadowed Newsom’s decision two weeks ago when she urged CalSTRS to sell its $6 billion holdings in oil and gas companies.

The Pensions & Investments website reported that Ma made the call after hearing more than 40 students tell the CalSTRS board on Sept. 5 of the importance of divestment.

CalPERS trustee: Prioritize high returns

While the surge in support for divestment will likely prove popular with California Democrats, it’s not clear how CalPERS members will react. Corona police Sgt. Jason Perez stunned CalPERS Board President Priva Mathur in an October election after running on a platform that said CalPERS investment decisions should be solely based on their likely returns. Perez says many CalPERS members fear that they’ll never get close to their full pensions when they retire.

According to the most recent updates, CalPERS only has 70 percent of the funds it needs to meet its obligations to present and future retirees. CalSTRS is 63 percent funded, a huge disappointment to state officials who thought a 2014 bailout orchestrated by then-Gov. Jerry Brown and the Legislature would get it back to health. 

The University of California pension system is in much better shape than either CalSTRS or CalPERS, with 85 percent of needed funding.