Correcting CalSTRS misleading Claims about Divestment

CalSTRS claim: "Divestment is not a responsible investment."

In reality, the reverse of this statement is true. Two recent and comprehensive studies have concluded that companies and funds that have divested have suffered no deleterious financial effects whatsoever – and have, in many cases, seen gains:

• A massive recent study by economists at the University of Gronigen in the Netherlands sampled almost seven thousand international companies over a period of forty years and concluded: “The investment performance of portfolios that exclude fossil fuel production companies does not significantly differ in terms of risk and return from unrestricted portfolios. This finding holds even under market conditions that would benefit the fossil fuel industry. We conclude that divesting from fossil fuel production does not result in financial harm to investors”: https://www.tandfonline.com/doi/full/10.1080/14693062.2020.1806020

• BlackRock – the largest asset manager on the planet ($8-$20 trillion) – studied their mammoth client base and concluded that portfolios that divested “experienced no negative financial impacts from divesting from fossil fuels. In fact, they found evidence of modest improvement in fund return.” The report’s executive summary states that “no investors found negative performance from divestment; rather, neutral to positive results”: https://www.newyorker.com/news/daily-comment/the-powerful-new-financial-argument-for-fossil-fuel-divestment

CalSTRS claim: "Engaging companies to change them as a large investor is a better way to get change than divesting, pulling out money, and walking away."

This is a completely evidence-free claim. In truth, there are endless articles detailing the efforts, over the decades, to "engage" with fossil-fuel companies to persuade them to transition to clean energy – all of which have failed.

• Not only has the clean-energy movement been ignored, but the oil and gas industry has continued to pursue increasingly dangerous and dirtier sources of fossil fuels while investors supposedly "engage": https://www.theguardian.com/environment/2015/jan/15/engaging-with-oil-companies-climate-change-futile-admits-leading-environmentalist

• Even industry insiders, such as Bevis Longstreth, former head of the Federal Securities and Exchange Commission, now agree that “engagement” with the fossil fuel industry is futile: https://www.huffpost.com/entry/climate-change-and-invest_b_6295444

• In fact, according to a comprehensive study by TPI (a global initiative launched by the Environment Agency and the Church of England National Investing Bodies in 2017) that assessed 53 oil and gas companies on their carbon performance, none were on track to align their emissions with a 2°C climate pathway by 2050: https://www.transitionpathwayinitiative.org/publications/61.pdf?type=Publication

CalSTRS claim: "Fossil fuel stocks are essential to a healthy portfolio."

Data shows that fossil fuel stocks are rapidly declining in value and have disastrous long-term prospects, while divesting and re-investing in clean energy stocks is proving to be the smart move:

• The energy sector (which does not include renewables) finished dead last in Standard & Poor’s 500 ranking of sectors in 2018. As an example of their decline, in 1980, seven of the top 10-ranked companies in the Standard & Poor’s index were oil and gas companies. Today, there are none. In 1980, energy companies comprised 28% the S&P 500. Today, it is around 4%: https://ieefa.org/ieefa-update-fiduciary-duty-and-fossil-fuel-divestment/

• The future value of fossil fuel stocks are going to continue to drop dramatically. Since the Paris Climate Agreement, hundreds of nations and states are now committing to reducing their use of fossil fuels. In July 2019, for example, the State of New York enacted new legislation that mandates a reduction in greenhouse gas emissions from fossil fuel use. The target is a 40% reduction within the next 10 years and 85% by 2050. Because of this type of environmental legislation, Moody’s (one of the top financial analysis firms) downgraded the credit rating of Exxon Mobil in November 2019 from “stable” to “negative.” As entire regions move aggressively away from fossil fuels, oil and gas investments seem increasingly unwise: https://www.moodys.com/research/Moodys-changes-ExxonMobils-outlook-to-negative--PR_413126

• If we do not divest soon, we risk finding ourselves with “stranded assets.” Principles for Responsible Investing Group (a U.N. supported research organization) forecasts major changes in our energy system as we move away from fossil fuels and a rapid rise in renewables, including, solar, wind, and hydropower, which are predicted to generate 74% of all power by 2040. During this global energy transition, fossil fuels could become stranded (i.e. worthless): https://www.unpri.org/inevitable-policy-response/forecast-policy-scenario-macroeconomic-results/4879.article

• Even conservative institutions like the Rockefeller Brothers Foundation (RBF) have concluded: “At least 60 percent of all known fossil fuel reserves have to remain unburned if the world has any chance of meeting the 1.5-degree target set at the Paris Climate Summit in 2015, meaning these assets are likely to become stranded and lose value over time.” In 2014, RBF divested and saw their portfolio go from $840 million to $1.2 billion in 2019. In addition, the Rockefeller Family Fund (a sister organization with a portfolio of $5 billion) just announced they are also divesting: https://www.rbf.org/mission-aligned-investing/divestment & https://www.cnn.com/2020/12/18/investing/rockefeller-foundation-divest-fossil-fuels-oil/index.html

• Clean energy stocks are soaring. Corporate Knights (an analysis and research firm and publishers of the world's largest circulation magazine focused on sustainable business) recently conducted an analysis of CALSTRS and CALPRS portfolio. They concluded that, had we divested 10 years ago (and, of course, reinvesting that money in our remaining portfolio), California’s $238 billion state teachers retirement fund would have gained $5.5 billion without fossil fuels. The $380 billion public employees retirement fund (CalPERS) would have generated an additional $11.9 billion: https://www.commondreams.org/newswire/2019/11/05/new-study-shows-oil-coal-and-gas-investments-drove-over-19-billion-losses-major