Burning of fossil fuels is the major source of the greenhouse gases that are warming the planet and changing the climate, which is increasing the frequency and severity of natural disasters. Climate scientists warn us that we have little time to drastically reduce carbon emissions to preserve a climate suitable for civilization.
Divestment from fossil fuels is a major way to reduce their production and use. We read with interest the Northwestern University students’ 9/24/2020 letter to the RoundTable, reporting their campaign to get the Northwestern Board of Trustees to divest from the fossil fuel industry. We commend their efforts and hope Northwestern will join many other colleges and universities that have divested from fossil fuels.
We are lobbying the State Retirement Systems of Illinois to divest from fossil fuels and increase investment in clean energy. The State Retirement Systems of Illinois include the State Employees’ Retirement System (SERS), Judges’ Retirement System (JRS) and General Assembly Retirement System (GARS). These systems pool their funds, and investment management is provided by the Illinois State Board of Investment. The market value of these funds as of 3/31/2020 was over $18 billion. Currently, about 1.98% ($358.4 million) is invested in fossil fuel industries. We think it is in the interest of pension holders as well as the environment to reduce this percentage to zero. The fossil fuel industry continues its steady decline as evidenced by a decade of lagging stock market performance, fewer institutional investors, depressed profits and a weak outlook.
As of August 2020, only about 1.97% ($356.6 million) of the State Retirement Systems’ funds were invested in clean energy. We believe that a large increase in clean energy investment would benefit pension holders financially as well as contribute to the growth of this sector of the economy and a cleaner environment.
So far this year, renewable energy stocks are far outpacing the market as reflected by the S&P Global Clean Energy Index, rising 43% this year through August, while fossil fuel stocks have declined sharply as reflected by the S&P Energy Select Sector Index, which is lower by about 40% this year.
According to Forbes, renewable energy continued its fast growth in 2019, globally increasing by 12.2% over 2018. Over the past decade, renewable energy consumption has grown at an average annual rate of 13.7% and is the only category of energy that grew globally at double digits over the past decade. (We refer to both clean energy and renewable energy because our sources use both terms. Technically, renewable energy is derived from zero-carbon energy sources that can naturally replenish themselves, while clean energy is a somewhat broader category, including renewables and often some other sources, most notably nuclear, which some question as “clean” because of safety and environmental impacts.)
State law now requires that the retirement systems and other public funded entities consider sustainability, including environmental impact, in their investment decisions. The Illinois Sustainable Investing Act, effective January 1, 2020 states, “The General Assembly finds that consideration of factors relevant to the environmental impact, social impact, and governance of investments is vital for maximizing the safety and performance of public funds. Such sustainability factors are indicative of the overall performance of an investment and are strong indicators of its long-term value.” Accordingly, those who manage public funds have a duty to integrate sustainability factors into their policies and decisions.
The Illinois State Board of Investment has recently incorporated consideration of sustainability factors into its investment policy. However, it is the University of Illinois System, not the state retirement systems, that is leading the way in commitment of its portfolio to sustainable investing. Recently, it invested nearly $160 million of the system’s endowment (most of its U.S. Equity allotment) into its commitment to sustainability, becoming the first investor in a new BlackRock, Inc. strategy to deliver better long-term investment outcomes through socially and environmentally responsible investing.
By investing in clean energy, the State Retirement Systems can play a part in the future of clean energy and economic development in Illinois. Comprehensive clean energy legislation, the Clean Energy Jobs Act (CEJA), is likely to pass the Illinois General Assembly this fall. CEJA (Senate Bill 2132/House Bill 3624) will boost energy efficiency standards, take advantage of the falling cost of wind and solar power and protect the state from a federal regulatory ruling that could hit most Illinois consumers with up to $1.7 billion higher power bills over the next decade.
CEJA’s goal is to secure 100% carbon-free power by 2030 and 100% renewable energy by 2050. It will expand electrification so more people have access to cleaner, more affordable transportation. It is projected to generate more than $30 billion in new solar and wind infrastructure, adding thousands of new jobs. CEJA provides for workforce training across Illinois for economically disadvantaged communities and former fossil fuel workers, and it will ensure that low and moderate income communities see the benefits of new community solar projects.
On October 1st one of our climate group members spoke to the trustees of the Illinois State Board of Investment during the public comments section of their quarterly board meeting, requesting that they divest from fossil fuels and substantially increase investment in renewable energy for the reasons described above.
In several months, we will follow up to check for changes in their energy sector investments. We will also try to determine the current levels of fossil fuel and clean energy investments for two other state pension plans: the Teachers’ Retirement System (TRS) with $51.7 billion of invested assets (does not include Chicago teachers who have their separate system) and the State Universities Retirement System (SURS) with $19.5 billion of investments. We also plan to make presentations to the boards of these two systems.
This essay was submitted by James Gibbs, Douglas Scofield, Jack Kelly and Mary Griswold, members of CAPA Climate Group of Chicago Area Peace Action.