OST Public Equity Coal Holdings Underperformed by an Estimated $340 Million
December 5, 2023
Coal is a dying industry, it has declined in value over time, and its use is harmful to the health of all life forms. An increasing number of financial institutions, and public pension funds such as NYCERS, CalPERS and CalSTRS, are exiting coal to avoid holding stranded assets. Yet, as of June 30, 2022, the Oregon State Treasury (OST) had over $1 billion invested in thermal coal-related stocks, bonds and private investment funds, and these investments support the retirement of over 380,000 members of the Public Employees Retirement System (PERS).
Divest Oregon set out to analyze how those coal stocks have performed over the last nine years to determine if they have underperformed or performed well when compared to investing in the Standard and Poor’s (S&P) fossil fuel free index.
PERS’ public equity holdings as of June 30, 2022 were reviewed using the
Global Coal Exit List from Urgewald (GCEL). GCEL is a list of companies that covers the entire thermal coal value chain from coal exploration and mining to coal power production and coal gasification. It was created by Urgewald to give financial institutions a tool to understand the coal holdings in their portfolios. For 2021, the most recent GCEL available when the analysis was done, any company that generated 20% or more of its revenue or power generation from coal was on the list. It is updated annually and is the most comprehensive public database on the global coal industry. The review generated a set of 152 specific coal holdings with a market value of $610 million as of June 2022.
If the PERS holdings in those coal companies had alternatively been invested in the S&P fossil fuel free index fund starting in January 15, 2014, they would have outperformed the coal investments by an estimated $340 million.
Time series supporting estimate of coal underperformance. Lower line (orange): total value of the 152 public equity coal holdings with available data modeled backward in time from the June 2022 value. Upper line (blue): modeled reinvestment of the January 2014 estimated value in the S&P 500 Fossil Fuel Free Index.
The underperformance in the PERS portfolio due to coal investments is most likely much higher than this conservative estimate. OST has more holdings in coal, such as investments in corporate bonds and private investments, thus this result is only a partial analysis of the actual exposure to coal held by OST. The specific investments in private equity funds are unavailable via public records request because of state laws prohibiting their release. Thus, the performance of their coal components cannot be evaluated by the public. An October 2021 report by Private Equity Stakeholder Project (PESP) found that approximately 80% of energy investments made by the top 10 private equity firms since 2010 are in oil, gas and coal. OST’s September 2023 private equity portfolio invests in seven of these top ten firms (Oaktree Capital, KKR, Blackstone, Warburg Pincus, Apollo, TPG, CVC).
For more details on methodology used for this analysis, read this report, “Oregon State Treasury Coal Investment Performance Analysis.”
“First-in-the-nation” Pause Act will protect Oregon retirees from private equity’s overexposure to fossil fuels
Few public pension fund trustees have adopted a plan to address the risk of climate change to their portfolio. Oregon should be applauded as one of them, yet how does Oregon’s proposed plan compare to the major net zero plans of other US public pension plans? Divest Oregon has just released a comprehensive and detailed Comparison of US Pension Funds' Net Zero Plans Report . It allows the Oregon Treasurer and the Oregon Investment Council (OIC) to see what other fiduciaries are planning, to adopt best practices, and to change OIC policy as needed. Climate change is moving fast, and the report should be used by Oregon PERS and all fiduciaries to move faster in implementing a strong plan.
The newly released 2024 Private Equity Climate Risks Scorecard & Report by our allies, Private Equity Stakeholder Project, Global Energy Monitor, and Americans for Financial Reform Education Fund, gives us new insight into private equity firms and OST investments in these secret funds. Twenty-one major private equity firms manage $6 trillion in assets – and two-thirds of the energy companies in their portfolios are invested in fossil fuels. Oregon state employees’ pension plan (PERS) invests in 11 of these 21 funds.
Above: Natural coastal area of the proposed Rio Grande LNG terminal. Credit: Dylan Baddour/ Inside Climate News Below: Artist Rendering of the Rio Grande LNG project (Photo: Business Wire , 11/21/2019)
A recent article in Chief Investment Officer reported that the University of California had solid returns mostly stemming from a fund that excludes tobacco and fossil fuel investments: The University of California’s endowment and pension fund each returned more than 12% for the fiscal year ending June 30, boosting the total asset value of the university’s investment portfolio by $16 billion to $180 billion. Some $1.3 billion of that $16 billion gain came from a single S&P 500 index fund—one which excludes tobacco and fossil fuel investments—that provided the portfolio with its single biggest investment gain. We assume the OIC and Treasury would be thrilled by these types of returns, given the drag that private investments are causing to the portfolio returns, and the continuing liquidity problems of private funds. UC invests where they have a strong conviction while fulfilling their fiduciary duty. The two are not mutually exclusive: “This past fiscal year was about investing only in what we fully understand and taking full advantage of low-fee index funds guided by what we call the UC Investments Way,” said UC CIO Jagdeep Singh Bachher in a statement. “It’s about simplicity and leveraging our scale to concentrate on areas where we have strong conviction.” Bachher added that he believes the U.S. and “its resilient economy and thriving innovation ecosystem … is the best place to invest,” and the UC system has backed that up by allocating approximately 75% of its portfolio to domestic investments. We look forward to seeing the OST swiftly shift a significant portion of OPERF to index funds that exclude fossil fuels and to end any consideration of new investments in private funds that are laden with fossil fuel assets, as described in the Treasurer’s Net-Zero Plan. Collectively the country has moved past climate denial. The Oregon Treasury and the Oregon Investment Council should not get mired in solution denial . The solutions for a healthier pension and planet are available now!
A recent Bloomberg article explains that Oregon PERS made critical energy flow to the Putin regime possible, by enabling an LNG terminal. How? A $500 million financial commitment made in 2020 with $209.3 million is still available for investment, even after Treasurer Read said he would “Stand with Ukraine” and OIC agreed to end all Russian investments. This long-term, locked-in commitment of funds is one of reasons Divest Oregon continues to question private investments – especially since they are often laden with risky fossil fuel companies. Private investments comprise over half of the PERS portfolio . Background: The Oregon Treasury committed $500 million to the Stonepeak Infrastructure Fund IV in 2020 . In fact, the Treasury has been investing in Stonepeak Infrastructure Funds since 2012 . The commitment to a private fund is a long-term one. Once that commitment is made, the Treasury can only exit that fund at a steep loss, and once the commitment is made, the Treasury had no say in specific investments by the fund managers. Bloomberg reported that pension funds, including Oregon, enable the largest Russian LNG export terminal to function. Stonepeak invested in Seapeak LLC, which provides ice-class carriers specifically designed to carry Russian LNG from the Arctic. The carriers are only used for this purpose and are essential to the gas terminal. The investment by pension funds enables critical revenue flow to the Putin regime. The Bloomberg article states: The California Public Employees’ Retirement System, known as CalPERS, is one of the investors in Stonepeak’s fund and it said in response to a Bloomberg query that it had already raised concerns with the general partner. ‘We believe that Russian investments pose a material risk to our long-term investment success and have taken actions, consistent with our fiduciary duty, to remove these assets from our portfolio,’ John Myers, chief of Calpers’ office of public affairs, said in a statement. ‘We will continue monitoring events to ensure our partners’ actions are consistent with our investment beliefs.’ The Washington State Investment Board, Oregon Public Employees Retirement Fund, New York State Common Retirement Fund and the Teachers’ Retirement System of the State of Illinois declined to comment. Divest Oregon asked the Oregon Investment Council in one of our many emails to them: Is this a responsible investment, or a material risk? There were no sanctions violated, but does this uphold the pledge to “Stand with Ukraine” made by Treasurer Read and backed by the Council? We also asked: Do the long term risks justify continued new investments in predominantly fossil fuel private funds? We request that the OIC insure that there are NO NEW investments in fossil fuel investments especially in the private investment or bonds/credit markets. Digging the hole deeper makes no sense when you are already over target allocations in these private investments. Image: A Russian ice-breaking LNG Carrier. Source: VCG/Visual China Group/Getty Images
At the June 15th national-level meeting of the American Association of University Professors (AAUP), delegates overwhelmingly approved a sweeping resolution demanding that state pension boards and other fund managers divest fossil fuels from their funds. AAUP Oregon, the state-level organization of the AAUP, is a member of the Divest Oregon coalition and a leading union voice for divestment in our state. Victor Reyes, AAUP Oregon’s executive director, responded: “Watching the resolution pass with such overwhelming support by AAUP members from across the United States filled me with pride and reinforced the importance of the work we are continuing to do in our state as members of the Divest Oregon coalition. Our members understand that there is no retirement in a destroyed environment, and I feel confident that public support for divesting from fossil fuels can only grow with these recent wins.” Now the resolution goes to the AAUP executive committee for ratification and to direct its implementation.
These articles were shared with the members of the Oregon Investment Council in June 2024. When considering the speed of the transition , here are some important data points: Electric Cars are Suddenly Becoming Affordable ( NYTimes Business Section, 6/3/2024) “The E.V. market has hit an inflection point,” said Randy Parker, chief executive of Hyundai Motor America, which will begin producing electric vehicles at a factory in Georgia by the end of the year. “The early adopters have come. They’ve got their cars. Now you’re starting to see us transition to a mass market.” IEA expects global clean energy investment to hit $2 trillion in 2024 ( Reuters , 6/5/2024) The Cleantech Revolution ( Rocky Mountain Institute , 6/2024) The world has moved on to the steep part of the S curve (as shown below), which will sweep us from minimal reliance on renewable energy to minimal dependence on fossil fuel. Last year or this year, we will hit peak fossil fuel demand — the advent of cheap solar and wind and batteries, combined with rapidly developing technologies like heat pumps and EVs, has finally caught up with the surging human demand for energy even as more Asian economies enter periods of rapid growth. (comments by Bill McKibben)
Four days before the start of his New York felony trial, presidential nominee Donald Trump engaged in some major self-soothing activity — shaking down Big Oil for $1 billion in order to help him trash the climate. According to the Washington Post, which broke the story, Trump invited two dozen oil executives to a dinner at Mar-a-Lago. After one executive complained about burdensome environmental regulations issued by the Biden administration, Trump responded with a stunner, telling his guests: You are wealthy enough to raise $1 billion to return me to the White House. That would be a “deal,” he said, because of the costs of taxes and regulation they would avoid thanks to him. He vowed to immediately reverse dozens of environmental rules and policies and stop new ones. Trump said he would: End the freeze on new LNG exports - “you’ll get it the first day”; Auction more Gulf of Mexico oil leases; Allow more drilling in the Alaskan Arctic-“You’ve been waiting on a permit for five years; you’ll get it on Day 1”; Continue to “hate wind” [explaining why he breaks it?]. (According to the New York Times, Trump claims that windmills cause cancer and are driving whales insane). Scrap electric vehicle mandates (although they do not exist). Presumably this means scrapping regulations to reduce auto tailpipe emissions. Trump has earlier promised to end California’s ability to require cleaner cars than federal regulations do. One person involved in the industry said many oil executives wanted Florida Gov. Ron DeSantis or another Republican to challenge Biden. But now that Trump is the nominee, this person said, they are going to embrace his policies and give. Alex Witt, a senior adviser for oil and gas with Climate Power, said Trump’s promise is he will do whatever the oil industry wants if they support him. With Trump, Witt said, “everything has a price.” “They got a great return on their investment during Trump’s first term, and Trump is making it crystal clear that they’re in for an even bigger payout if he’s reelected,” she said.
The next Oregon Treasurer will be responsible for implementing and strengthening the Oregon Net-Zero Plan . The May 21 Primary will determine who will be the Democratic and Republican candidates for the position. The theme of the April 2 2024 Divest Oregon forum for the Oregon State Treasurer candidates was Building a Treasury for Tomorrow . Treasurer Candidates Jeff Gudman and Senator Elizabeth Steiner participated in the forum held at First Unitarian Church of Portland. Divest Oregon was pleased to welcome about a hundred to the in-person audience at the forum and the same number online. Alex Baumhardt of the Oregon Capital Chronicle was the moderator and drew from questions submitted by the audience. Candidate Republican Brian Boquist was invited to participate, but declined. The moderator referenced two recent Divest Oregon wins: Treasurer Read’s Net-Zero Plan for the Oregon Treasury and the 2024 COAL Act (HB 4083) encouraging the Treasury to stop investing in coal, phase out of current coal investments, and annual reporting on those actions. The candidates were asked about their plan to get PERS to net zero emissions. Senator Steiner congratulated Divest Oregon for pushing to get Treasurer Read to formulate a net zero plan and noted the plan’s failure to include scope 3 emissions (author’s note: for example the emissions from burning coal as opposed to Scope 1 emissions from mining coal). She indicated confidence in her ability to discern greenwashing, or the shading of the truth, by companies in which the Treasury has invested. Jeff Gudman approved of the shareholder engagement with fossil fuel companies included in the plan. He pointed out that the increase in green investing in the plan simply tracks market projections and noted, “We can do better.” In addressing the lack of transparency of private investments, Gudman suggested reporting after a fund closes out of investments made during the life of the fund. He also suggested reporting on categories of investment rather than specific investments. Steiner affirmed having a diverse portfolio with public and private investments. She suggested more transparency in the guidelines for picking private funds and managers. Both candidates said it would not make sense in the long term to invest in fossil fuels, but did not commit to a definition of long term. Senator Steiner said we need to drop fossil fuel investments before “they become less and less profitable.” Gudman said we need to enforce companies’ “standards” through shareholder engagement. Steiner devoted her summary to the toll of financial insecurity and the role of the Treasury in promoting savings plans as well as preserving retirement funds. In his closing statement, Gudman said the Treasury is already doing a good job in managing its existing programs. He touted a second role of the Treasurer: to use the bully pulpit to promote, for example, allocation of kicker dollars or “using carbon credits to address the climate crisis that we are in.” The forum was followed by a candidates’ reception and a celebration of the work and the wins of the Divest Oregon coalition.