2006-08-16 - 02 - Road Trip - Day 24 - United States - California - Oil Pumps

Can San Francisco’s pension system kick the big oil habit?

While the San Francisco Board of Supervisors has voted unanimously since 2013 for full divestment from fossil fuels, the San Francisco Employees Retirement System (SFERS) has postponed its decision, even in the face of dismal returns. SFERS is now accused of “dithering” on the financial challenges of climate change.

SFERS Board President Victor Makras is in favor of divesting. He spoke at a Government Audits and Oversight committee hearing September 5, stating the $500 million investment in fossil fuel funds has not been a money-maker for the 28,000 City employees.

“We’re avoiding the debate, and we’ve got our heads in the sand. What we’ve seen over the last four years is diverting from transparency,” said Makras. “The fund managers should call out for us that this has not had good returns and bring us recommendations.”  Makras proposed a divestment vote at last month’s SFERS board meeting. That vote was postponed.

A city employee retiree took the podium at the Board of Supervisors hearing and confirmed the low rate of return on the investment in fossil fuels. “Four years ago, the price of oil was over $90 a barrel,” he said. “Now it’s half that.”

SFERS Executive Director Jay Huish also spoke, and confirmed that over the last three to five years, the performance of fossil fuels has diminished, but says that there is a still a place to continue holding them as a hedge against inflation in a ten-15 year horizon. Huish says SFERS has hired expert managers who understand they need to hold these stocks as long term investments.

But SFERS is no stranger to divestment. The pension system has a history of engaging in social issues dating back to 1988, when it divested of tobacco. In 2013, the board voted to rid the portfolio of all stocks related to firearms retailers and manufacturers, including those in firearms manufacturer Remington.

“Tobacco kills. Guns kill. But there is nothing of magnitude of climate change relative to the future of planet Earth,” said Supervisor Aaron Peskin, who along with Supervisor Jane Kim, presided over yesterday’s hearing. “This is no different than guns and no different than tobacco, and arguably even a more important imperative.”

“You’re hedging against inflation over a five to fifteen year time horizon when the imperative for cities and states and nations to act decisively doesn’t give us five to fifteen years,” said Peskin.   

Supervisor Peskin also published an op-ed piece in the Chronicle advocating for divestment.

SFERS Director Huish claimed that SFERS’ divestment would set a national precedent.  “This is a very difficult legal decision that every fiduciary on every public pension fund across the US is dealing with today,” he explained to the Board of Supervisors. “None of them has been able to come forward and do a complete ban.”  

Meanwhile, in the national and international landscape, Washington, DC’s pension system divested of fossil fuels in June 2016. California has reaffirmed its commitment to the Paris Climate Accord, and divestment momentum is on the rise. As of last month, fossil fuel divestment internationally has amounted to a sum of $5 trillion. Former Seattle Mayor Michael McGinn is urging Seattle’s pension board to divest. On September 9, the University of California’s Investment Office announced that it already has divested the university’s nearly $100 billion portfolio from coal mining and oil companies focused on tar sands.

Supervisor Peskin asked the SFERS Executive Director if he was aware of emerging legal theories expounded by Center for International Environmental Law that “failure to acknowledge and address the financial risks posed by climate change may result in a breach of one or more of these duties with potential liabilities in addition to financial losses.”

But in Huish’s view, his responsibility to pension holders was to make a higher return, longer-term risks to the climate notwithstanding. He responded: “I will be interested in the legal analysis of forcing us to sell at a potential loss without having repercussions on the members of the board of the fiduciary.”

Peskin concluded with a warning to Huish that the issue is very likely to end up on the June 2018 election ballot.  “I want you to know that this is probably coming if you can’t find your way there. You may want to figure out an early retreat.”



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