RCRC, in coalition with local government partners, opposes Senate Bill 252, authored by Senator Lena Gonzalez (D-Long Beach). This measure would require CalPERS and CalSTRS divestment from fossil fuel companies.
Many public agencies utilize CalPERS to provide retirement benefits to their employees. The fund is used to pay out retirement benefits to CalPERS members. SB 252 prohibits the CalPERS and CalSTRS boards from making additional or new investments or renewing existing investments in a fossil fuel company. The bill requires divestment from such investments by July 1, 2031, unless that requirement is suspended upon a good faith determination by the board that an act of God, war, or other unforeseeable event creates conditions that materially impact normal market mechanisms for pricing assets. The authority to make such suspensions ends on January 1, 2035.
Senate Bill 252 offers only a symbol, not a solution to the climate crisis. CalPERS believes in the urgency of a transition to a low-carbon future and is actively engaged in efforts to bring its portfolio to net zero. The energy sector is an important part of that work. But SB 252 trades long-term economics for current policy interests, the kind of decision that's incompatible with CalPERS' fiduciary duty.
Divestment harms investment performance and increases transaction costs. In their analysis of SB 252, CalPERS staff concluded that: "As of December 31, 2022, the estimate of publicly traded securities held by CalPERS that meet the criteria of a "fossil fuel company" as defined in SB 252 is $9.4 billion.
The only prior divestment of any comparable size to SB 252 was the 2016 decision to divest from the tobacco industry. The action affected approximately assets worth $550 million (5% of the size of the SB 252 assets), but the multi-year loss now stands at almost $4.3 billion in unrealized returns. Other past divestitures, including the 2017 effort on thermal coal (approx. $14 million), were far less sweeping than what's now under consideration.
Forcing divestment of California retirees' funding ultimately transfers the ownership of the investments to other investors at a great cost to the CalPERS and CalSTRS funds, and removes the ability for the funds, as shareowners, to influence the companies to act responsibly.
SB 252 passed off the Senate Floor on May 25th and is in the Assembly awaiting committee assignment. We encourage counties in the CalPERS retirement system to oppose SB 252: employers and employees would bear the investment loss and transaction costs to maintain divestment through increased contribution rates.
The coalition's opposition letter is available here. For more information, contact RCRC Policy Advocate, Sarah Dukett.