A Pension Win for the Golden State: Fossil Fuel Divestment Bill Dies
The Golden State saw a huge win last week. We’re not talking about the Warriors’ NBA championship. Last week, Senate Bill 1173 was halted for this legislative session. The bill would have required the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) to divestment from fossil fuels and ban all future investments in fossil fuels.
Stopping this bill will help protect pension fund solvency. As we discussed in an op-ed for the Orange County Register earlier this month, politically motivated divestment leads to pension funds leaving millions of dollars on the table in foregone investments and increased costs on taxpayers. The drama surrounding this bill also coincided with California-based Chevron’s announcement that the company will shift jobs to Texas.
The divestment bill passed in the California State Senate. But Assemblyman Jim Cooper, the Chairman of the Assembly Public Employment and Retirement Committee, declined to schedule the bills for hearings this session. In a news release, Mr. Cooper stated, “Previous legislative divestment requirements have resulted in long-term negative financial effects on California’s pension systems.”
Assemblyman Cooper understands the threats divestment poses to pension solvency. As we stated in the Orange County Register:
When lawmakers are allowed to use retirement funds for their own political activism, investment returns suffer, and unfunded liabilities grow at a faster pace. This higher volatility means taxpayers must pay more in pension contributions when investment returns fall short of assumed returns. Additionally, every state employee should have confidence that their retirement funds are being invested for maximum growth and not to promote a political agenda.
In addition to losing money on foregone investment returns, politically motivated investment also fails to meet its stated goals. As research from the Center for Retirement Research at Boston College shows, boycotting companies is unlikely to have any impact on stock values because there are always other investors willing to purchase stock that a pension fund has divested from and/or boycotted.
Stopping politically motivated divestments is needed now more than ever. In the latest edition of Unaccountable and Unaffordable, California has a total of $1.5 trillion in unfunded pension liabilities, over $38,000 per capita. Allowing politics to drive investment practices over the past 20 years helped contribute to massive unfunded liabilities as liability growth rapidly outpaced asset growth. Even without Senate Bill 1173, California pension systems still have policies in place that allow politically motivated investing strategies.
Assemblyman Cooper made the right decision by stopping California from continuing to play politics with pension funds. California must continue to put fiduciary responsibility before politics and undo the politically motivated investment practices still in place.