Divesting from fossil fuels isn’t just good for the planet. It can be good for financial returns, too.
That was one of the conclusions from a new Corporate Knights report that revealed that a Colorado pension fund missed out on an additional US$2.7 billion in returns over the last 10 years by not divesting from fossil fuels.
The report found that the Colorado Public Employees’ Retirement Association (Colorado PERA) could have earned an additional 21.8%, or $4,161, for each of its members from 2012 to 2022 if it had divested all its fossil fuel stocks in favour of the rest of the portfolio.
“While it’s true that oil and gas stocks had a banner year over the past 12 months thanks to the Russia–Ukraine conflict, even taking this highwater mark for their stocks into account, over the past 10 years oil and gas was the worst-performing sector from a total returns perspective,” says Corporate Knights CEO Toby Heaps. “The gathering trends, namely the rapid electrification of transportation coupled with ever-cheaper renewable electricity, will materially disrupt demand for oil and gas – pointing toward another lost decade for remaining fossil fuel investors.”
The report, which was commissioned by Boulder County, laid out three different scenarios in which the pension divested from stocks that earned 10% of revenue from thermal coal, oil and gas; divested from stocks that earned 50% of revenue from those sources; and divested from all fossil-fuel-related stocks. Researchers found that in each scenario, the pension fund missed out on similar returns.
And a breakdown of the Colorado pension fund’s total returns by sector shows that oil and gas stocks had the lowest returns during this period (even with high returns from 2021 to 2022 due to skyrocketing energy prices caused by the invasion of Ukraine). Information technology had the highest.
The revelation came as Colorado state lawmakers consider a bill that would direct the Colorado PERA board to adopt proxy voting procedures that “ensure that the board’s voting decisions align with, and are supportive of, the statewide greenhouse gas emission reduction goals.” If passed, the bill would also adopt new GHG targets for the state that would slash emissions by 65% (of 2005 levels) by 2035 and 100% by 2050.
At a committee hearing on the bill this week, supporters urged lawmakers to approve the legislation, citing the Corporate Knights research.
“Moral arguments aside, this should be a major red flag for anyone interested in the long-term financial stability of PERA’s investments,” said Giselle Herzfeld, a defunding climate disaster coordinator with 350 Colorado. “Portfolio managers have a fiduciary duty to identify risks in their portfolio and strategize to avoid and eliminate these risks.”
The Colorado pension fund is far from alone when it comes to financial institutions continuing to invest in fossil fuels despite the obvious risks of doing so. Some of Canada’s largest pension funds, such as the Canada Pension Plan Investment Board and the Public Sector Pension Investment Board, continue to finance oil and gas expansion. And according to a report by Reclaim Finance, banks and financial institutions that signed on to the Glasgow Financial Alliance for Net Zero (a group with assets worth more than US$130 trillion) have continued to pour hundreds of billions of dollars into fossil fuels.
Nor is Colorado PERA alone in its proven missed opportunities. In 2016, Corporate Knights analysis showed that the New York State Common Retirement Fund lost at least US$5.3 billion from its investments in coal, oil and gas. And Corporate Knights research revealed in 2015 that the University of Toronto lost more than $550 million by not divesting.
But a growing number of pension funds are now adopting sustainable investing strategies. In 2021, Corporate Knights found that 12 of Canada’s biggest pension funds had quietly unloaded fossil fuel stocks over the previous 10 years. And in 2018, Ireland became the first country to divest its national investment fund completely from fossil fuel companies. (This decision followed Corporate Knights research that showed the fund had investments in at least 152 fossil fuel companies.)
It’s time for Colorado PERA and others to get on board to prevent the retirement savings of their members from being squandered on the pathway to catastrophic climate change.
