Proposed Bill Would Require CalPERS, CalSTRS to Divest Fossil Fuels

California lawmakers have introduced a bill that would require the California Public Employees’ Retirement System and the California State Teachers’ Retirement System to divest all their fossil fuel assets, which are worth more than $9 billion combined, within five years.

Senate Bill 1173, introduced by Sen. Lena Gonzalez, D-Long Beach, and co-sponsored by Sen. Scott Wiener, D-San Francisco, would prohibit the $474.6 billion CalPERS and the $308.6 billion CalSTRS from making new investments or renewing existing investments in fossil fuel companies. The bill defines a fossil fuel company as one of the 200 largest publicly traded fossil fuel companies as established by carbon content in the companies’ proven oil, gas and coal reserves.

The bill would force the two pension fund giants to liquidate investments in fossil fuel companies by or before July 1, 2027, and the funds’ boards would be required to file an annual report with the state legislature and governor beginning Feb. 1, 2024, that contains specified information, including a list of fossil fuel investments that have been liquidated.

California’s state Constitution grants the retirement board of a public employee retirement system the authority and fiduciary responsibility for financial investment and the administration of the retirement fund and system. However, the state legislature has the authority to prohibit investments if it believes it is in the public interest and if it satisfies standards of fiduciary responsibility required by a retirement board.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

The bill says that requiring the retirement systems to divest their fossil fuel holdings is “consistent with, and not in violation of, their fiduciary responsibilities.” Current state law prohibits the CalPERS and CalSTRS boards from making new investments or renewing existing investments of public employee retirement funds in thermal coal companies, which refers to companies that burn coal to generate electricity.

“As a leader in the fight against climate change, California must align the investment choices we make with our moral and environmental goals,” Gonzalez said at a virtual news conference. “Investing billions in the fossil fuel companies that are polluting our environment while at the same time trying to meet ambitious emissions reduction goals is contradictory and incongruous.”

Gonzalez said the bill would align the pension funds’ investment strategy with the state’s efforts to mitigate global warming.

“While California has taken a leading role on the world stage in advancing landmark and far-reaching policy and budget solutions to fight climate change, we are also unfortunately faced with the contradictory and incongruent fact that our state’s two largest employee pension funds use their enormous investment power to finance the very companies that are driving climate change.”