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Pension Funds Pay Huge Price for Fossil Fuel Investments, Study Shows

Public pensions would have 16.6 percent lower emissions and be worth $21 billion more if they had divested a decade ago.

Climate activists protest outside the World Bank headquarters, calling on the institution to stop financing fossil fuels during the World Bank Group and the International Monetary Fund Spring Meetings in Washington, D.C., on April 14, 2023.

Climate campaigners on Wednesday said the latest research on fossil fuel divestment should convince pension funds to pull their money out of the oil, gas, and coal sectors, as a new study found that six major U.S. funds have lost out on tens of billions of dollars by continuing to invest in fossil energy.

The global campaign network Stand.earth joined the University of Waterloo in Canada in analyzing the public equity portfolios of the pension funds, including the California Public Employees’ Retirement System (CalPERS), the Alaska Retirement Management Board (ARMB), and the New York State Teachers’ Retirement System (NYSTRS).

Between 2013 and 2022, the total value of the portfolios grew to $402.8 billion, but without investments in fossil energy, the funds would be worth $424.6 billion today, according to the study, which was published Monday.

The difference of more than $21 billion holds true despite the fact that the fossil fuel industry has reported record profits in the past year.

CalPERS lost $4.7 billion over the past decade, costing pensioners an average of $3,163, as a result of its fossil fuel investments, the study found.

“That’s because, along with being actively bad for the planet, fossil fuel has been actively bad for its shareholders,” wrote350.org cofounder and author Bill McKibben in a Los Angeles Times op-ed on Wednesday. “It dramatically underperformed other asset classes for the past decade, and for an obvious reason: A new industry, renewable energy, has arisen that delivers the same product, just more cheaply and cleanly.”

Six major US retirement funds would be worth a combined **$21 billion MORE** today if they had divested a decade ago.

The writing’s on the wall for fossil fuels.

What are our pension funds waiting for…?🤔https://t.co/JqBlmcZcgj

— UK Divest (@UKDivest) June 28, 2023

Divestment “has not been that attractive from a financial point of view” in the last three years as “the value of the fossil fuel sector went up because of the reduced oil supply from Russia” and the Covid-19 pandemic, said Stand.earth.

However, “even in times of high performance in the fossil fuel sector, divestment does not reduce financial returns in any significant way,” found the group.

“The average difference between the reference portfolio and the ex-energy portfolio is 13 percentage points,” reads the report, meaning the funds would have seen a return on investment that was 13 percentage points higher on average over the past decade if they had removed their investments from fossil fuels.

Switch It Green, which calls on banks to divest from fossil energy sources, said that although campaigners know financial entities “refuse to stop funding fossil fuels for the sake of the planet, maybe they will for their pockets?”

NEW RESEARCH: Over the past 10 years, six US public pensions missed out on $21 billion by failing to #divest from fossil fuels

Full report: https://t.co/rdMH2nbYtX

If investors refuse to stop funding #FossilFuels for the sake of the planet, maybe they will for their pockets?

— Switch It Green (@switchit_green) June 28, 2023

“If climate chaos like fires and floods weren’t enough, this latest report strengthens the case even further that public pension funds must divest from fossil fuels as part of meeting their fiduciary duties,” said Amy Gray, senior climate finance strategist at Stand.earth. “As the longest-term investors for workers, the last thing pension funds should be doing is gambling with retirement and deferred wages of their members.”

Tom Sanzillo, director of financial analysis at the Institute for Energy Economics and Financial Analysis, toldDeSmog that while the oil and gas sector have reported record profits in recent years, their revenues” are unsustainable and their future is on shaky ground.”

The sector accounts for 5% or less of the stock market today, compared to 28% four decades ago.

“Financially it doesn’t make sense to stay invested [in fossil fuels],” Olaf Weber, a sustainable finance professor at University of Waterloo who co-authored the report, told DeSmog, noting that previous research has determined that public pension funds in California and Colorado would have gained $19 billion if they’d divested from fossil fuels in 2009.

The study out this week found that pension funds would have drastically improved their carbon footprint if they had pulled their money out of fossil fuels a decade ago, reducing their emissions by 16.6% or nearly 280 million tons—”a win-win situation” for the funds and the planet, the researchers said.

“Influential investors, like these large public pension funds, can bring about positive change on a few fronts,” said Weber. “Energy divestments can create higher returns for the funds, which leads to higher returns for the beneficiaries and reduced exposure to climate risks. Consequently, it leads to safer pensions.”

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