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CalSTRS' perspective on fossil fuel divestment

CalSTRS acknowledges there are interested parties and stakeholders calling for fossil fuel divestment. Divestment is a last resort action that can have a lasting negative impact on the health of the Teachers’ Retirement Fund, while also severely limiting our ability to shape corporate behavior for long-term sustainable growth.

We share this sense of urgency regarding climate change and are focused on understanding and responding to the risks it presents both to the CalSTRS Investment Portfolio and to sustainable economic growth. At the September 2021 Teachers’ Retirement Board Investment Committee, the board pledged to achieve net zero greenhouse gas emissions in our portfolio by 2050 or sooner. This pledge recognizes that climate change affects the whole economy and every asset class in our portfolio.

Our goal is to protect the Teachers' Retirement Fund from all risks to our portfolio, which includes the impacts of climate change while securing the financial future for California's public educators. Divestment from fossil fuels ignores the larger climate risks from different sectors we’re working to address and diverts resources from our ongoing efforts to achieve net zero.

Our engagement with companies, bolstered by partnerships with the world’s largest global investors, continues to result in more companies committing to and monitoring carbon emissions reductions. We must prudently and responsibly address risks from both the physical impacts of a changing climate and the transition to a low-carbon economy.

Our low-carbon economy transition work plan positions our portfolio to be resilient in this changing world. We consider multiple factors when reviewing risk and return as it relates to our investments in fossil fuel companies, including:


Diversification is an important principle in long-term investing to reduce risk and maximize returns by allocating investments among various financial instruments, industries, regions and sectors. Divestment, from a whole industry or sector, can detract from the ability of a diversification strategy to succeed, and could negatively impact the health of the fund. By diversifying our Investment Portfolio, the fund can better mitigate risk as diverse sectors react differently to economic, social and political events. The energy sector is historically less correlated with other industries, which can provide protection in recessionary markets. Furthermore, divestment from an entire sector fails to distinguish that there are significant differences in individual company strategies, even within the same sector and sub-sector.

Climate change affects all sectors of the global economy

While the burning of coal, natural gas, and oil for electricity and heat is the largest single source of global greenhouse gas emissions, representing 25%, another 24% comes from agriculture, forestry and other land uses. We believe it’s essential to take a comprehensive view of how climate change is impacting multiple sectors. A narrow focus on the fossil fuel industry only captures a portion of the much larger carbon emissions challenge and detracts from developing a broader understanding of how the low-carbon transition affects the global economy and the fund’s investment universe.

Global fossil fuel demand

A rising global population and increasing economic progress in less developed countries and emerging markets are historically correlated to increases in energy demand. The most trusted economic models, such as the International Energy Agency, indicate the world will continue to rely on some forms of fossil energy for several decades, despite significant increases in renewable energy. Additionally, fossil fuel will continue to be relied upon by emerging economies to reduce poverty by helping the population attain a basic level of services and a higher standard of living.

As the demand for energy continues to grow, it’s important that long-term investors, such as CalSTRS, actively engage fossil fuel companies and the sectors that currently rely on fossil fuels, such as utilities and transportation, to transition their business models to cleaner forms of energy and minimize the environmental impacts of their operations and products. It’s not plausible to meet the world’s growing energy demand immediately from renewable sources.

Scaling of emerging technologies

Biofuels, hydrogen use, nuclear, energy storage capabilities, and carbon capture and removal are among some of the emerging technologies that a low-carbon future depends on. As consumer preferences and demand shifts, fossil fuel companies must adapt by continuing to develop these emerging technologies until they are scalable and economically viable. Significant infrastructure improvements are required to enable and support these emerging technologies. Investors recognize that companies must change course in order to sustain their businesses and remain resilient over the long term. As such, investors are engaging fossil fuel companies to use their technical expertise, personnel, existing infrastructure, capital and scale to support the realization and adoption of these essential technologies.

Geopolitics and the role of state-owned oil and gas companies

The Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization that includes members from some of the world’s most oil-rich countries. When talking about divesting from ‘big oil’, understand that the majority of the world’s oil supply is produced by state-owned enterprises, which are predominantly owned by countries rather than institutional investors. However, well-known, publicly traded companies, such as BP, Shell, Chevron and Total, have traditionally developed new technologies and practices that influence the entire industry, including state-owned oil producers. This makes it vital for investors to continue to engage publicly traded energy companies in order to influence change across the entire industry.

Final reflections

CalSTRS has the responsibility to continue to take a holistic approach to addressing climate-related risks across our entire portfolio. Divestment from fossil fuel companies fails to address the myriad issues that contribute to climate change. As a global institutional investor with a long-term focus, we remain committed to understanding how climate risk affects our investment portfolios. This information guides how we invest and how we use our influence as a significant global investor to engage companies and policy makers to curb emissions and support an orderly low-carbon transition.

View our summary of the factors we consider when investing in and engaging fossil fuel companies.