Climate Safe Pensions for Wisconsin Response to the
June 2024 State of Wisconsin Investment Board (SWIB) Statement on Divestment
We are responding to the State of Wisconsin Investment Board’s recent “Statement on Divestment” and its reference to the Board’s statutory responsibility for managing the assets of the WRS and other trust funds. It appears to us that the Statement may have at least in part been motivated by public efforts to urge SWIB to divest from risky fossil fuel companies and invest in more profitable and sustainable companies engaged in the world-wide transition to energy sources such as solar and wind.
The SWIB Statement includes, in our opinion, a narrow definition of “divestment” and simplistic assertions regarding “divestment as a tool to address social or political issues.” It is important to note that Climate Safe Pensions for Wisconsin (CSPW) representatives have called on SWIB to divest from fossil fuel companies for fiduciary reasons. Our communication has consistently focused on calling upon SWIB to develop a plan to shift financially risky investments in fossil fuel companies to more profitable, sustainable investments in companies focused on energy sources such as solar and wind because that is SWIB’s fiduciary responsibility. We have also called upon SWIB to include assessment of climate-related financial risks – both physical and transition risks – in their financial decisions.
CSPW has made numerous requests for greater transparency on the part of SWIB regarding its investment activities in relation to the energy transition. The responses of staff members have been evasive and largely uninformative. As best we can tell, Board trustees remain silent on energy transition matters. As such, we raise the following concerns:
SWIB has not published a statement on its responsibility to sell-off energy sector investments in fossil fuel companies because the risk of loss is outside an acceptable tolerance level.
SWIB has not published a statement on its responsibility to invest in new types of energy sector investments because the potential returns are high and risks are low. These clean energy investment opportunities include solar, wind, EV charging infrastructure, energy storage (advanced batteries), and grid access upgrades.
In our opinion, SWIB’s Statement on Divestment includes questionable references that attempt to provide an academic basis for the statement. One such flawed study is by Daniel Fischel that states “divestment” is a “costly and ineffective investment strategy.” This 2017 report ignores the significant underperformance of the fossil fuel company portion of the energy sector and the wide range of risks it faces as the world rapidly transitions away from using fossil fuels in response to the climate crisis.
SWIB’s statement ignores other more recent and relevant reports and studies that we have sent to SWIB staff and the Board. The extant literature documents the sound, evidence-based financial reasons for shifting investments away from fossil fuel companies. For example:
The 2023 study by economists at Waterloo University that analyzes SWIB’s own stock portfolio over the past ten years and concludes SWIB would have made $4.3 billion more by eliminating fossil fuel stocks. 1
A report from the Institute for Energy Economics and Financial Analysis entitled “Passive Investing in a Warming World” that analyzes the past ten years and most likely future finding “The energy transition is beginning to leave an imprint on equity markets. Fossil fuels, once a primary driver of index returns and economic growth, are becoming an increasingly risky and speculative part of passive equity portfolios.” The report also concludes that fossil free passive funds have matured and pass the fiduciary test. 2
We have consistently asked SWIB to consider the physical risks caused by climate change as well as transition risks. For example, recently we called to their attention the insurance industry’s decisions to stop insuring homes in several markets, including the Midwest, and the implications this may have for the housing markets, banks and economy as a whole. 3
Our concerns are focused on economic and financial factors – the very factors cited by SWIB as the basis for its investment decisions. There are over 1500 institutions world-wide that represent over $40 trillion in assets that have now committed to some level of fossil fuel divestment. 4 These include large banks, insurance companies and pension funds. They have done comprehensive legal and financial checks and found divestment to be consistent with their fiduciary requirement to invest for the long term in a prudent manner.
Multiple studies and reports from divested institutions reveal the financial benefits of fossil fuel divestment. The most striking was a report issued in 2021 by BlackRock, the world’s largest investment house, under commission to New York City’s Comptroller and pension funds. 5 It looked at a wide range of divested funds and found that none of them “found significant negative performance from divestment but rather, have reported neutral to positive results,” adding that divestment “outperforms all other options.” Other parts of the report said that fossil fuel stocks “consistently underperformed the broader market over the past five years,” warning of the danger of fossil fuel holdings tanking as the world transitions to renewable energy. Blackrock also noted that the costs to divest were negligible and could be done in the normal and regular course of rebalancing investments.As Insurers Around the U.S. Bleed Cash From Climate Shocks, Homeowners Lose
We’d like to add one more correction. In order to assert that divestment is a fiscally costly idea, the SWIB statement refers to the losses incurred by the CalPERS from divesting in tobacco. More relevant to the current discussion is the information included in the same document and chart that show that CalPERS made money by divesting from coal. 6
We call on SWIB to publish an explanation of how the Board is carrying out its fiduciary responsibility to take into account investment risks and opportunities in relation to the global energy transition.
Footnotes
1 Waterloo University report:
2 IEEFA Report Passive Investing in a Warming World: https://ieefa.org/resources/passive-investing-warming-world
Also see:
IEFFA June 2023 report: The Financial Case for Fossil Fuel Divestment: https://ieefa.org/financial-case-fossil-fuel-divestment
IEFFA February 2024 report: IEEFA highlights the rise of low-carbon, passive indexes that compare favorably with traditional funds: https://ieefa.org/resources/ieefa-highlights-rise-low-carbon-passive-indexes-compare-favorably-traditional-funds
3 Insurance Industry and Climate Risks
May 13, 2024 NY Times article highlighting Iowa homeowners losing their insurance: As Insurers Around the U.S. Bleed Cash From Climate Shocks, Homeowners Lose
June 12, 2024 discussion on Marketplace with the Chief Climate Officer at Fannie Mae: https://www.marketplace.org/2024/06/12/fannie-mae-chief-climate-officer-natural-disaster-risk-management/
4 Divestment Database: https://divestmentdatabase.org/
5 BlackRock report:
http://ieefa.org/wp-content/uploads/2021/03/BlackRock-Phase-One.pdf
http://ieefa.org/wp-content/uploads/2021/03/BlackRock-Phase-Two.pdf
http://ieefa.org/wp-content/uploads/2021/03/BlackRock-Phase-Three.pdf
6 For more about how CA made money divesting from coal: