Staff of the California Public Employees’ Retirement System (CalPERS), the largest public pension fund in the country, is recommending that the fund’s Board vote in December to reinvest in tobacco, based on profits the tobacco companies have made overseas since CalPERS divested 16 years ago.
Q. Why is the tobacco decision important for fossil fuel divestment?
A. If the CalPERS board votes NOT to reinvest in tobacco, they will be incorporating a moral argument into an investment decision—paving the way for divestment from the fossil fuel companies whose business threatens our future.
CalPERS is accepting public comments on staff’s tobacco reinvestment proposal by November 11. Here’s how you can comment:
Recently CalPERS staff presented a webinar on the fund's tobacco investment and the options they will present to the Board at their December 19 meeting. You can watch the video here. In his 23-minute presentation, Chief Operating Officer Wylie Tollette made the case for reinvestment in tobacco stocks … and took no questions. He said staff will give the CalPERS board three options to consider:
- Maintain the status quo: divestment from tobacco stocks in portfolios managed by CalPERS in-house staff
- Extend tobacco divestment to portfolios managed by external firms or individuals
- Reinvest in tobacco
Staff interpreted the board’s 2000 tobacco divestment decision as applying only to directly managed investments. This is hardly divestment! CalPERS has hundreds of external managers managing other portfolios that no doubt include tobacco stocks.
Every concerned Californian has a stake in this decision. Please send CalPERS your comments by November 11. If you can, join us at the December 19 Investment Committee meeting in Sacramento, and tell the Board what you think!
Fossil Free California and 350 Bay Area Divestment are now launching a renewed campaign urging CalSTRS to divest completely from all fossil fuel companies by 2020 — beginning with ExxonMobil, Chevron, and Shell. These Big Oil companies have known for decades that their everyday business practices contribute to climate change, but they have failed to join in the international effort to minimize global warming. In fact, it’s worse than that: they have lied about the effects of their business, pretending that the economy can thrive only by burning oil and minimizing their contribution to the rise in atmospheric carbon.
Since Big Oil companies refuse to modify their business plans or activities, investors — especially CalSTRS — should refuse to own any of their shares.
Sign our petition here, so we can let CalSTRS know that you are among the thousands of Californians who support divestment. If you’re a teacher — and a member of CalSTRS — your message carries even greater force, but we all have a say in the public welfare of our state. Tell the CalSTRS Board that you refuse to stand by while the state teachers' pension fund invests in companies perpetrating the climate crisis.
And please share the video with friends and family. This is an opportunity for us all to make a difference with the nation's second largest public pension fund. And CalSTRS' example will spur divestment decisions throughout the country.
We should all divest from fossil fuels. If you own stocks or bonds of coal, oil, or gas companies, selling those investments — divesting — is a good idea, for many reasons. That's true whether you hold fossil fuels as an individual investor, a member of a union or pension fund, or a concerned citizen of a municipality or state that owns such investments.
We urge all investors to purge their portfolios of these toxic holdings. Morally, it's the right thing to do. Financially, it's the smart thing to do.
What you can do
Throughout California, there are many active divestment campaigns. You can join us, as we urge pension funds, cities and counties, health organizations, religious groups, universities, and individuals to get rid of fossil fuel investments. 350 Bay Area is active in local and statewide efforts. If you'd like to get involved, a good place to start is Fossil Free California, a statewide organization allied with 350 Bay Area. You can also:
Why divest? For moral reasons
The moral reasons for divestment are clear: the products of fossil fuel companies are harmful to human beings, in fact harmful to our entire ecosphere. Unless we stop injecting carbon dioxide and other heat-trapping gasses into the atmosphere, the global temperature will rise more than 2 degrees Celsius, and much of the Earth will become uninhabitable.
We have known for years that smoking tobacco kills people. Therefore, we do not invest in the companies that produce it. We now know that burning coal, gas, and gas kills people too, and is likely to prove ever more catastrophic in the future. Therefore, we should not invest in the companies that produce them. It is unethical to support those who befoul the commons for their individual benefit. As Bill McKibben sums it up: "If it’s wrong to wreck the climate, then it’s wrong to profit from that wreckage."
Why divest? For financial reasons
In fact, however, current investments in fossil fuels are highly unlikely to produce future profits. If fossil fuel companies are allowed to destroy the climate, they will lose money too. The world of energy production is changing rapidly as clean renewables become cheaper and as the governments of the world rally to save the environment after the historic COP21 agreements last year.
As a result, the financial arguments for divestment are also strong. It is becoming increasingly clear that fossil fuels must remain in the ground, and therefore the value of holdings in oil, gas, and coal companies will continue to plunge. It's a risky business. The logic is this:
- The current valuation of fossil-fuel companies is based, in large part, on the prospective market value of the coal, oil, and gas reserves which they own and plan to sell.
- If catastrophic climate change is to be averted, a large percentage of those reserves (an estimated 70-80%) must remain in the ground, unsold and unburned.
- As the effects of climate change become ever clearer, governments will increasingly implement policies to reduce the burning of fossil fuels, in the form of regulations, carbon taxes, mandatory cap-and-trade regimes, and subsidies for renewable energy. These policies have begun to be implemented worldwide, especially since the COP21 Paris accords.
- As associated costs increase and renewables become less expensive, fossil-fuel supply outstrips demand, and it will become uneconomical to extract the reserves, beginning with the dirtiest and the most expensive. This process is already underway, as coal companies go bankrupt and oil and gas rigs are idled in Alberta, North Dakota, Texas, and elsewhere.
- These unextracted reserves will become stranded assets; valuation of fossil-fuel companies will be reduced; and the carbon bubble will deflate.
- Anyone whose portfolio still includes oil, gas, or coal assets will lose a lot of money.
While the moral reasons for divestment certainly take precedence, many trustees and investment specialists for pension funds have strong financial reservations, an understandable concern that by divesting they may not be fulfilling their fiduciary responsibility to the members of those funds. In fact, the opposite is true: holding on to such toxic investments is an abrogation of their legal fiduciary responsibility. Maintaining fossil fuel holdings is a disservice to the funds and their members, financially as well as morally.