On June 21, the Washington State Democratic Party passed a resolution calling for the Washington State Investment Board to divest, within the next five years, “all direct and indirect holdings from fossil fuel companies.”
The resolution points out that “the scientific consensus is clear that the climate crisis poses an imminent and existential threat to human health, global ecosystems, and economic stability.”
So far, the financial industry continues to invest in climate chaos. Since the Paris Climate Accord was signed in January 2016, the financial industry has invested over $8 trillion in the fossil fuel industry (oil, gas and coal). More than $3 trillion of this investment is in new fossil fuel infrastructure and exploration. In December 2024, one month before President Donald Trump’s inauguration, six major U.S. banks — JPMorgan Chase, Citigroup, Bank of America, Morgan Stanley, Wells Fargo and Goldman Sachs — withdrew from the United Nations-sponsored Net Zero Banking Alliance.
Even the WSIB, which manages $230 billion in assets, including 18 pension funds, six labor and industry funds and 16 university funds, has about $8 billion in public equities invested in fossil fuel-production and -supply companies.
Washington law states that the WSIB’s “primary investment objective is to maximize returns at a prudent level of risk for the exclusive benefit of fund participants and beneficiaries.”
Once blue-chip investments, fossil fuel assets have underperformed the returns of the non-energy Standard & Poor’s 500 equities for the past decade. Over this time, non-fossil fuel assets have performed four times better than coal, oil and gas assets. Since 2022 the stock market, as measured by the S&P 500, has nearly doubled (92%) while the value of fossil fuel assets has risen only 17%.
While past performance is not always an indicator of future performance, the fossil fuel sector is facing long-term competition from renewable energy and electrification, as well as growing regulatory, market and judicial risks from the damage caused by climate change.
Fossil fuel assets no longer help the WSIB maximize returns on its portfolio. Continuing to invest in fossil fuels creates an imprudent level of risk for state employee pensioners, labor and industry, and university funds.
Nonetheless the WSIB is reluctant to divest its holdings in fossil fuels. In January, the WSIB made two arguments before the state Senate Ways and Means Committee. In the first, WSIB representatives said “any restraint on an asset class (fossil fuels) will likely lower returns and raise transaction costs.”
But two major financial management firms, BlackRock and Meketa, independently concluded that investment funds have suffered no negative financial impacts from divesting from fossil fuels in reports done at the request of New York City’s Comptroller for the city’s three pension funds.
In 2021, the New York City pension funds, similar in size to the WSIB, divested $4 billion of fossil fuel assets. The recently appointed chief investment officer for the NYC Comptroller’s Office, Monte Tarbox, said, “people who come to the conversation for the first time assume there’s a trade-off — that to do the right thing, you have to compromise on economics or financial returns. Our experience has been quite the contrary: you can do both … we’ve not only not seen a deterioration in returns, but we’ve seen improvements.”
WSIB’s second argument against divestment was “corporate engagement is really the way to move the needle — you give up your voice if you give up ownership in these stocks.”
Corporate engagement through shareholder proxy votes can indeed help accelerate renewable clean energy transition plans for non-fossil fuel companies. But for fossil fuel companies that have every incentive to continue to extract and market oil, gas, and coal, not so much.
With global temperatures rising and climate disasters intensifying, we need both engagement and divestment strategies. Corporate engagement, without anything to back it up, is just a discussion.
If the WSIB were to stop investing in new fossil fuel assets and divest from existing fossil fuel assets, it would send a strong, clear message that you can maximize pension and state returns, at prudent levels of risk, while helping to save the planet.
