This week, the Creek Fire in California officially became the largest single wildfire in the state’s history — and the blaze remained just 32 percent contained. Already this year, more than 3.6 million acres have burned in nearly 8,000 separate fires.

Five of the six largest fires to strike California since reliable record-keeping began are currently burning according to Cal Fire. Smoke from the fires has already reached the Atlantic coast and turned skies along the West coast eerie shades of orange and red. The fires have killed at least 26 people — and the smoke may have already caused the deaths of an additional 1,200 people, researchers from Stanford University estimated earlier this month.

Meanwhile, a new report finds that California’s largest pension fund has continued to invest in fossil fuel companies, whose products are the biggest driver of climate change. CalPERS, the nation’s largest pension fund, still invests in, for example, a South African mining firm that calls itself a “leading coal producer” — despite the sector’s massive downturn over the last several years and a state law that directed CalPERS to divest from coal.

“CalPERS’ coal policy lags far behind many other institutional investors,” the report, published by Fossil Free California, which has urged divestment by the state’s large pension funds, said. “The fund’s coal investments have lost value, and global economic and policy trends indicate that investments in the coal sector are unlikely to prove profitable in the future.”

CalPERS invests on behalf of 1.9 million members, including current and former teachers, state and local government workers, police and firefighters — including many of the firefighters on the front lines of today’s wildfires. The fund, the nation’s largest, holds roughly $409 billion in assets under management.

Coal or Not Coal? A $6.5 Billion Question

Back in 2015, then-Governor Jerry Brown signed a law (SB185) requiring CalPERS and the state’s other major pension fund, the California State Teachers’ Retirement System (CalSTRS), to sell off coal companies — unless the companies could demonstrate that they were transitioning away from coal and towards clean energy.

The new report charges that SB185’s standards for what counts as a “coal investment” are extremely narrow compared to standards that are supported by environmental advocates and used by other pension funds, banks and insurance companies.

In 2017, CalPERS reported that it had shed the vast majority of its coal holdings, pursuant to SB185. It identified 17 coal companies in its portfolio and said that, following discussions, only three had pledged to move towards clean energy, leading CalPERS to sell off its investments in the remaining 14 firms, a divestment totaling $14 million.

Using the Global Coal Exit List’s standards, which are broader than the state law’s, Fossil Free California calculated that CalPERS still holds more than $6.5 billion invested in the coal industry writ large. “These investments include companies holding the world’s largest coal reserves,” Fossil Free California said in a statement.

In other words, more than 98 percent of CalPERS investments in the coal industry, as defined by the Global Coal Exit List, aren’t considered covered by the law’s requirements.

“CalPERS is now widely perceived to have divested from coal,” the report says. “However, an analysis of CalPERS’ June 2018 and June 2019 portfolios shows that, in fact, CalPERS increased their investments in coal mining and the coal supply chain by $1.5 billion from 2018 to 2019, for a 2019 total of $6.5 billion in coal-related holdings – dwarfing their meager divestment.”

In addition, CalPERS did not divest from three of the 17 companies covered by SB185, citing pledges to transition to clean energy. Those firms include, for example, the South African coal mining company, Exxaro.

“Exxaro generates 99% of its revenue from coal operations which are violating environmental rights in places like my community, near Exxaro’s Grootegeluk mine,” Francina Nkosi, a coordinator with the South African group Women Affected By Mining United In Action, said in a statement accompanying the report.

Dieci Hercules 120.10 telehandler delivered at Exxaro Grootegeluk Coal and Mine. #dieci #diecisouthafrica #telehandlers #DieciSA #diecitelehandlers #mining #coalmining pic.twitter.com/uEknospC8e

— Dieci Equipment Africa (@DieciAfrica) February 6, 2020

The Grootegeluk mine, according to Exxaro’s website, produces 26 million tons of coal products per year — and has reserves of minable coal that, at that rate, would take 125 years to produce. “We continuously strive to unlock maximum value in our Coal Resources and Coal Reserves,” Exxaro said in a 2019 report for investors. In March, Exxaro told investors it planned to move into renewable energy in the future, calling renewables core to the company’s future strategies.

CalPERS more than doubled its investment in Exxaro from 2018, when it held 311,000 shares in the firm, to 2019, when it held 798,000 shares, Fossil Free California reported.

“Our analysis found that, despite a partial divestment in 2017, CalPERS’ portfolio still holds millions in thermal coal producers and coal-fired utilities, and continues to invest in companies that meet the law’s (highly constrained) definition of ‘coal investments,’” the Fossil Free California report says.

Firefighter Pensions

While the reasons that the state has tended to have wildfires generally are complex, it’s clear what’s been making wildfires worse in recent years, scientists say.

“This climate-change connection is straightforward: warmer temperatures dry out fuels,” Park Williams, a bioclimatologist at Columbia University’s Lamont-Doherty Earth Observatory told The New York Times. “In areas with abundant and very dry fuels, all you need is a spark.”

This decade’s biggest wildfires in California have burned more than double the number of acres that burned in the prior ten years, an LA Times investigation found.

This year’s devastating and record-breaking fires have been burning the West while the Atlantic side of the continent has faced a record-breaking hurricane season.

Amidst these crises, more action to curb climate change remains strongly supported by US voters — including actions often framed as radical or unachievable by politicians, polls show. One poll published this week by the Guardian reported that 90 percent of US Democrats and 41 percent of US Republicans supported a Green New Deal, and that 75 percent of all voters supported a full transition to renewable energy within 15 years. A Pew poll earlier this summer found two thirds of Americans felt that the government was doing too little to address climate change.

NOTHING QUITE LIKE CHOKING ON THE AIR UNDER A BLOOD RED SKY TO GET YOU EXCITED ABOUT GRADUAL, MARKET–BASED SOLUTIONS TO CLIMATE CHANGE

— NOT A WOLF (@SICKOFWOLVES) September 11, 2020

Just yesterday, California announced that it would be phasing out the sale of new gasoline-fueled cars by 2035 as a growing range of automakers have begun to offer EV options.

Meanwhile, for every dollar in wages earned by police and firefighters, many of whom are now on the front lines of the battle against California’s wildfires, state and local governments pay roughly 50 cents into the CalPERS pension fund. In some cities, CalPERS contributions for public safety officers are even higher than the officers’ weekly paychecks.

By continuing to hold fossil fuel investments, the logic goes, CalPERS may be taking some of that money and using it to add fuel to the wildfires of tomorrow. That’s money that towns and counties intend to use to fight fires, that may wind up pushing the state towards a hotter, drier climate that’s increasingly prone to mega-fires and other catastrophes.

Climate Risks’ Rapid Rise

To be sure, CalPERS has a broad array of investments and only a fraction of its holdings are linked to fossil fuels. Roughly 8 percent of its stock portfolio is in energy industry holdings, CalPERS said in a December 2019 report.

Overall, CalPERS has said that 20 percent of its holdings, including its fossil fuel investments, face financial risks from climate change.

Those risky investments can decline very quickly, some analysts warn. Other large institutional investors have predicted that up to $20 trillion in assets could rapidly become “worthless” because of their links to climate change, as outgoing Bank of England governor Mark Carney put it in a January BBC interview.

“Up to 80% of coal assets will be stranded, [and] up to half of developed oil reserves,” Carney said. “By the time that the extreme events become so prevalent and so obvious, it will be too late to do anything about it.”

Another day, another #FossilFuel writedown:#Peabody Energy has written $1.4bn off the value of the world’s largest #coal mine, an acknowledgment of electricity generators’ permanent shift towards gas & wind https://t.co/j1xWtQKIQM

— Carbon Tracker (@CarbonBubble) August 6, 2020

There are signs that U.S. coal firms are beginning to walk away from coal mines they say no longer make economic sense — even under a wildly supportive Trump administration that has said it intends to abandon the Paris Agreement. This summer, U.S. coal companies announced write-downs of $1.8 billion in assets, with companies citing factors like retirements of coal power plants, the increased use of both renewables and natural gas (itself a major source of climate pollution), and other structural factors that affect the broader coal industry. 

“What’s happening here is you have accounting estimates catching up to the things that we’ve discussed for a year or more,” Benjamin Nelson, senior credit officer and lead coal analyst at Moody’s Investors Service, told S&P Global Market Intelligence this month. “What it’s telling you is that industry conditions in the coal industry are not going to reverse, at least in our view.”

So far, 2020 has been a bruising year for the global coal industry, where CalPERS’ thermal coal holdings are focused, as well. “We expect global coal demand to fall by about 8% in 2020, the largest drop since World War II, with coal use declining in virtually every sector of every region in the world,” the International Energy Agency wrote in April. For the first time, the world’s capacity to burn coal for electricity shrank ever so slightly in the first half of 2020, according to Carbon Brief, as coal plant retirements outpaced new construction amid the pandemic and stronger European pollution regulation.

A Nice Green Corner of the World

In earlier decades, CalPERS was a frontrunner on divestment, participating in the divestment from apartheid-era South Africa in 1986 and later shedding its tobacco stocks.

But in more recent years, the fund has struggled to generate sufficient returns to satisfy its obligations and some insiders have questioned whether divestment is a strategy that works for a fund of its size.

Part of the problem is that the gap between the economy we have today and the economy needed to reach the Paris Agreement’s standards remains very wide. “We simply can’t get there unless the wider economy gets there because we’re too big,” Anne Simpson, CalPERS’ interim managing investment director for board governance & sustainability, said at an online sustainable finance conference this month. “You can’t get $400 billion in a nice green corner of the world.”

Other insiders have pushed back against divestment more broadly. At a November investment committee meeting, Ben Meng, then CalPERS’ Chief Investment Officer, said that the pension plan cannot “constrain itself to a limited set of investment opportunities.”  

Meng resigned this summer after just 18 months on the job. “Calpers found that Meng approved an investment into a private-equity fund managed by Blackstone Group Inc. at the same time as he held Blackstone shares,” Bloomberg reported in August, describing his resignation as a “stunning development.”

The Blackstone Group has invested, as of February, in a broad array of fossil fuel projects, including the Sabine Pass LNG Project in Louisiana, the Rover pipeline, and an Indiana power company that generates electricity from natural gas and coal.

Fossil Free California and other groups have pushed for California’s major pension funds to divest for years, including during this February 2015 protest. Credit: 350.org, CC BY–NC–SA 2.0

There’s a broad debate about whether fossil fuel investments provide returns that should attract institutional investors — or if they should be seen as less attractive financially. A recent study in the journal Climate Policy found that investments in fossil fuel stocks can potentially offer attractive returns — but no more than other stocks associated with the same levels of risk.

“The upshot of this is that higher returns for fossil fuel stocks over long periods reflect the fact that they are riskier investments—not better ones,” Anthropocene Magazine reported in August. “And portfolio managers should be able to match those returns with a suite of non-fossil fuel stocks that have similar risk exposure. In other words, you don’t need fossil fuel investments in order to do well in the stock market.”

In November, a study by analysts at Corporate Knights found that CalSTRS, CalPERS, and Colorado’s public pension fund PERA collectively lost out on over $19 billion by investing in fossil fuels. If they’d divested in 2009, the report asserted, they could have brought in billions more for their members.

CalPERS responded to Fossil Free California’s report in a letter dated Sept. 13. “After reviewing the report, we find both the content and conclusions misleading,” CalPERS CEO Marcie Frost wrote in a letter to FFCA. Frost emphasized that CalPERS seeks to engage with “high carbon emitting companies,” citing commitments to decarbonize by 2050 by an array of companies, including Shell, BP, Duke Energy, Southern Company and other major fossil fuel firms and electrical utilities. “While the report acknowledges our sale of 14 thermal coal holdings following the passage of SB 185 in 2017, it does not fully reflect the review process for the three companies (Banpu, Adaro, Exxaro) that remain in our investment index, based on discussions with the companies that they were moving away from coal to cleaner energy as set out in our public report on the matter.”

Fossil Free California responded to that letter, writing that in their view, an engagement strategy on coal “is simply too late, due to the science of global warming” and that “we disagree that CalPERS engagement is delivering measurable results” at sufficient speed.

In November, CalPERS will review findings from its investment consultant, Wilshire Associates, related to how divestment has affected the pension fund’s portfolio.

It’s not clear whether California’s fire season will still be raging that month. While historically, autumn or rains have helped to quench the dry season, recent years have seen those rains arrive later in the year. “While wildfires are a natural part of California’s landscape, the fire season in California and across the West is starting earlier and ending later each year,” Cal Fire says on its website. “Climate change is considered a key driver of this trend.”