Op-Ed: Is the San Francisco Employees’ Retirement System poised to divest from fossil fuels?

Looking ahead to a key meeting later this month

San Francisco’s current city employees and retirees have long yearned for the San Francisco Employees’ Retirement System (SFERS) to divest from its fossil fuel investments. Recent developments suggest this could move a step closer at a meeting on January 24.

Doing so requires four of SFERS’ seven-member Board of Trustees to vote to divest. Although they appear one vote shy, there’s hope two trustees will switch and support divestment. Other observers suspect divestment won’t happen until there’s a major change among the seven current trustees.

It was back in April 2013 that San Francisco’s 11-member Board of Supervisors unanimously passed a non-binding resolution urging SFERS to fully divest and do so within five years. SFERS staff members and its Trustees have stalled since then.

But on May 17 last year SFERS’ Trustee Victor Makras introduced a motion to divest from SFERS’ public equity and fixed income fossil fuel holdings, particularly investments that were losers. His motion has languished and hasn’t been voted on yet.

Makras noted that on a two-year return basis there were just 12 investments with gains, and 37 involved losses. Other observers have documented that since December 2013 SFERS has lost at least $290.1m (€241m) from its fossil fuel investments.

Unfortunately, SFERS staff and SFERS’ general investment consultant, NEPC, in August recommended against divestment on specious grounds, asserting full divestment within 180 days would just exacerbate fossil fuel losses the fund has already sustained. Seattle’s City Employees’ Retirement System (SCERS) council member Lisa Herbold previously suggested SCERS should replace NEPC as its investment consultant because of NEPC’s unwillingness to analyze climate change investment risks.

Then, on September 12, San Francisco’s Board of Supervisors unanimously passed a second resolution, again urging divestment.

What else changed to stimulate divestment hopes?

For starters, back in December 2015 SFERS’ Trustees approved prudently divesting only its thermal coal company holdings valued at $48.1m from its $470m in public equity and fixed income fossil fuel investments.

It then took a year-and-a-half before SFERS Staff finally recommended in May 2017 placing Level III restrictions (divestment) against nine companies deriving significant revenues from thermal coal mining (valued at approximately $21m — just 4.5% of SFERS’ total $470m fossil fuel investments), and place nine other companies under Level II (shareholder engagement), which vote passed unanimously, raising hopes.

Then, San Francisco City Attorney Dennis Herrera filed a lawsuit on September 19 against five “Big Oil” corporations, including BP, Chevron Corporation, ConocoPhillips Corporation, Exxon Mobil Corporation, and Royal Dutch Shell PLC. The lawsuit seeks a court order requiring the defendants to abate global warming-induced sea level rise by funding an abatement program to build sea walls and other infrastructure needed to protect human safety, and public and private property in San Francisco. His lawsuit specifically notes the case shifts the costs of rising sea level harm back onto the companies contributing to this “public nuisance.”

It’s difficult winning such a lawsuit when SFERS is concurrently investing in the same companies causing the underlying problem. Lawyers for the five companies may develop an argument that San Francisco can’t sue companies it continues to invest in.

Following the North American Climate Summit held in Chicago in concert with the Global Covenant of Mayors for Climate and Energy that started on December 6, San Francisco Mayor Edwin Lee, Chicago Mayor Rahm Emanuel and Paris Mayor Anne Hidalgo published a joint Op-Ed on December 8 on the blogging platform Medium.com.The three mayors were signatories to the Chicago Climate Charter, along with mayors from around the world.

The three noted they won’t allow President Trump’s delusional climate change-denying policies to stop cities from fighting climate change. They wrote: “Despite the false promises from President Trump, the shift from coal to renewable energy is unstoppable and it is creating thousands of new green jobs each year.”

Three days later Mayor Lee published a second Op-Ed. He said: “In San Francisco, we are poised to be one of the first major cities in the nation to divest from the fossil fuel industry in our pension fund, an issue our Retirement Board will vote on next month.” He wouldn’t have risked predicting SFERS is poised to divest, unless he had secured the necessary four votes.

Mayor Lee may not have known the largest public pension fund in Washington, D.C. — the District of Columbia Retirement Board — purged its $6.4bn fund of all direct holdings in fossil fuels in June 2016, making DCRB one of the first U.S. cities to do so.

Lee noted the City seeks a responsible, phased approach to divestment by identifying the riskiest, dirtiest assets in SFERS’ portfolio first, implying full divestment would follow.

Mayor Lee acknowledged the “move to divest from fossil fuels is part of a collaborative City effort,” and he was thankful for the hard work of municipal Board of Supervisors members Malia Cohen and Aaron Peskin. [Cohen is a Trustee of SFERS’ board, given her ex-officio position as a city supervisor.]

Sadly, just hours after publishing his second Op-Ed, Lee collapsed in a grocery store and died shortly after.

It’s significant Lee thanked Peskin. Before he collapsed, Lee probably knew Peskin planned to introduce on December 12 a June 2018 ballot measure to change the appointment of SFERS’ Trustees. Lee apparently agreed to reduce his appointing authority from three to two trustees. Peskin’s measure requires SFERS to comply with California Government Code §7514 to report management fees paid for alternative investments, such as hedge funds and other absolute return investments.

SFERS’ Trustee Wendy Paskin-Jordan, whose mayoral appointment ends in February 2019, is thought a target of the ballot measure.

SFERS’ Trustees voted unanimously to become a signatory to United Nations-supported Principles for Responsible Investment (PRI) on June 14, 2017. PRI in Person 2018 will run concurrently with California governor Jerry Brown’s Global Climate Action Summit, both being held in San Francisco September 2018. It would be extremely awkward if the host city continues investing in fossil fuels!

Known for his corny jokes, one of Lee’s last was to call for Alcatraz to be re-opened to house President Trump, should Trump be convicted and sentenced.

More seriously, one of his last official actions was the Op-Ed urging full divestment. His greatest legacy would be SFERS finally and fully divesting from fossil fuels.

I predict the SFERS’ Trustees will honor Lee’s legacy by taking another step toward full divestment on January 24.

Patrick Monette-Shaw is a columnist for San Francisco’s Westside Observer neighborhood newspaper. Full Disclosure: He is a retired City employee who assisted meeting material preparation for Mayor Lee’s Disaster Council Meetings.