November Letter to PERA Leadership & Board of Trustees

November 10, 2021 

Dear Director Baker, Ms. McGarrity, Mr. Steppat and PERA Board and Staff, 

On behalf of the Fossil Free PERA coalition, thank you for taking the time to meet with a few of us today along with legislators who are supportive of our concerns. 

As follow up from our meeting today, we wanted to be sure you have seen the recently released report highlighting important considerations regarding our continued calls for PERA’s divestment from fossil fuels. This report also highlights important calls to action that institutional investors and other financial actors must take immediately in order to be on the right side of history in solving the climate crisis. 

On the eve of the COP26 climate summit, the fossil fuel divest-invest movement released a new report detailing how nearly 1500 institutions representing an unprecedented total of $39.2 trillion worth of assets have now committed to some form of fossil fuel divestment, a figure that’s higher than the annual GDP of the United States and China combined.

With more than $46 trillion in assets worldwide, pension funds are the world’s largest asset owners and among the biggest investors in fossil fuels. Climate change poses serious risks to both pensioners and their investments. Pension fund divestment from fossil fuels not only supports sustainable growth and a transition towards a low-carbon economy, it fulfills a prudent financial responsibility to protect the rights of pensioners by refusing to profit off of companies committed to the destruction of the climate.

The latest IPCC report confirms that there are less than nine years left to make transformative changes to the world’s energy systems and economies before facing dangerous and irreversible damage to the climate.  

We recognize that at present, PERA is choosing to uphold and maintain the status quo with regards to investment strategies and decision-making processes. However, we continue to urge PERA to adopt new ways of thinking and decision making in congruence with the crisis at hand. We continue to maintain that your strategy of ESG and engagement is wholly insufficient and ineffective in forcing the level of change needed at the pace needed. 

For example, the University of Cambridge reviewed 20 years of shareholder engagement and concluded that shareholder resolutions are largely unbinding, most resolutions fail, the majority of resolutions that pass aren’t implemented, and the resolutions implemented fall into the category of disclosure only. Evidence of positive results is lacking. 

Furthermore, Ms. McGarrity’s comments about how PERA’s continued investments in fossil fuels give PERA leverage through engagement did not align with her clarification later that “we are not activist investors—it is not our business to tell companies how they should operate.” What is true? Is PERA actually using investment as leverage to compel companies to align action with climate priorities at all? We continue to be interested in demonstrated change that you can point us to. 

This year has seen a short-term surge in oil prices and stock market gains, but over the last nine years, fossil fuel stocks have routinely underperformed the market. Institutional investors are focused on these long term trends. Big Oil once dominated Wall Street, literally setting the market pace as a major component of both the Dow Jones Industrial Average and S&P 500 indices. But those days are over. Oil and gas companies now make up only 2.7 percent of the stock market’s value, down from 28 percent, even with recent gains. 

Large insurance companies, pension funds, and universities with massive endowments have driven the biggest increases in assets under management committed to divestment. Institutional investors everywhere are beginning to come to terms with the danger that fossil fuels pose to their investment portfolios, their communities, and their constituencies. This realization is important but it is not enough. Institutions around the world must step up now and commit to taking action to address the climate crisis, which entails a rapid shift away from fossil fuels. 

The International Energy Agency (IEA) stated in its recent Net Zero by 2050 Roadmap that there can be no new coal, oil and gas developments if the world is to limit global warming to below 1.5°C and prevent catastrophic climate impacts. The International Energy Agency roadmap also said that achieving the world’s climate goals requires investors to more than triple the amount of money flowing to renewable energy projects by 2030. 

We continue to call on PERA to be a forward-thinking institutional investor, and to actively contribute to this necessary transition via your immediate investment decisions. We continue to maintain that it is the ethical choice, and research shows it can be done without reducing returns. 

We urge you to review the Invest Divest 2021: A Decade of Progress towards a Just Climate Future report and in particular review the section highlighting why ESG and engagement is not enough at this crucial juncture in history when far more significant action to address the climate crisis is required. 

Finally, here is a folder detailing the formal communications between Fossil Free PERA and PERA since 2019 on the issue. You'll see that a variety of formal inquiries have been submitted outlining the fiduciary and moral imperatives to divest from fossil fuels and including specific questions that as of yet have remained unanswered. We very much look forward to hearing how you will be addressing these concerns going forward.