CalPERS Fossil Fuel Divestment Bill Hinges on Union Support (1)

A California state senator is resurrecting an effort to liquidate and estimated $15 billion in fossil fuel investments from the two largest public pensions in the country, but will have to first persuade some usual political allies in her cause.

Democratic Sen. Lena Gonzalez’s chances at divesting California from oil and gas companies sank last year when the chair of the Assembly Public Employment and Retirement Committee refused to consider a similar measure, citing the politically divisive nature of oil and gas divestment.

Gonzalez said she’s working harder this year to gather support for the measure (S.B. 252) from a crucial lobbying bloc—California’s labor unions—and is prioritizing organized labor given the legislation could potentially affect many of their members’ retirement funds.

“Many [local chapters] have really been pushing the leadership to make a determination on this bill,” Gonzalez said in an interview last week. “The conversations will hopefully move further.”

But the state’s largest and most powerful labor organizations have remained on the sidelines. The California Labor Federation, the Service Employees International Union, and the California Teachers Association have not taken a public stance on the bill. Those three groups have tremendous sway in the state legislature where the Democrats have a supermajority in both chambers, donating close to $220 million to politicians, ballot measures, and other committees in the last election cycle.

“There are CTA members on both sides of the fossil-fuels divestment issue,” said Claudia Briggs, a spokeswoman for the teacher’s union. The union’s state council wants to see “concrete goals and measurable steps” that will ensure a dependable retirement income for educators, she said.

The council will meet in late March and could take a position on the bill at that time, Briggs said.

Terry Brennand, director of pensions, revenue, and budgets for SEIU California, didn’t say whether his organization would back the bill, but that the service-workers union supports a “broader approach of gradual divestment” from carbon-intensive investments.

“SEIU is working with CalPERS and CalSTRS to accelerate carbon neutrality goals that will include fossil fuels,” Brennard said in an email through a spokesman.

The California Labor Federation didn’t respond to a request for comment.

The bill would direct the California Public Employees’ Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS) to end its investments in oil and gas companies. The funds are already barred from investing in the thermal coal industry. If passed, the boards of CalPERS and CalSTRS would have six years to liquidate their existing fossil assets, and an additional five years in which the pension boards could still make some fossil investments in the name of fiduciary health, but would need to provide that information in regular reports.

CalPERS staff estimates that the bill would affect $9.4 billion in investments, spokesman John Myers said in an email. The CalPERS board opposed Gonzalez’s last bill on the matter, and will hear a presentation on S.B. 252 as soon as next month. Barbara Zumwalt, an information officer with CalSTRS, placed that fund’s oil and gas investments at an estimated $5.4 billion.

Latest Salvo in ESG State Battles

The measure comes as Republican lawmakers in statehouses across the country are pushing to limit access to state contracts and pension funds for businesses with investments and policies that consider environmental, social, and governance (ESG) factors.

The political buzz that ESG measures generate often overshadows the actual impact, said Jacob H. Hupart, an attorney with Mintz Levin, Cohn, Ferris, Glovsky and Popeo, P.C. in New York. The California measure has a long implementation period, and pension board members could decide to keep some fossil investments for the sake of financial solvency.

“The ultimate impact of the law may not be quite as potent as the press statements issued by some politicians may suggest,” Hupart said.

Gonzalez said the state pensions are investing public dollars in companies that continue to expand their fossil fuel footprint, in opposition of the state’s 2050 goal to reduce greenhouse gas emissions by 80% below 1990 levels.

“The state goals are pretty clear, and they have just not wanted to budge,” she said of energy companies.

The measure was introduced last month as part of a trio of Democratic legislative proposals intended to clamp down on the fossil fuel industry. The other legislation: S.B. 253 would require large companies operating in the state to disclose their greenhouse gas emissions; and S.B. 261 would require large corporations doing business in California to file reports on financial risks tied to climate change. The latter bill is similar to a proposal by the Securities and Exchange Commission to require publicly traded companies to disclose their output of carbon emissions within their operations.

California’s budget set aside $54 billion last year on initiatives to counter climate change, a level that could drop in the new fiscal year in July because of a budget shortfall.

Gov. Gavin Newsom (D), through a spokesman, didn’t weigh in on the measure, which is his typical response to pending legislation. But other top state officials have voiced support for fossil fuel divestment.

State Treasurer Fiona Ma came out in favor of such an effort in 2019. State Controller Malia Cohen in her former position as a county supervisor helped San Francisco’s employee pension system rid itself of an estimated $100 million in fossil fuel investments. Both sit on the CalPERS and CalSTRS boards.

Investor activism to influence companies on their climate policies has increased over the past decade, and will continue to do so this year, according to a report from Bloomberg Intelligence. Thirteen out of 30 shareholder resolutions submitted among the major oil-and-gas companies last year addressed environmental concerns, an increase of 63% from 2021.

The parameters on whether divestment actions have hampered the financial performance of pension funds are still subject to debate, Hupart of Mintz Levin said.

“How are we going to evaluate the health of a public pension fund? Is it going to be on a one-year basis? It could be on a ten-year basis,” he said.