Environmentalists have been urging the Oregon State Treasury to dump investments in carbon-emitting businesses for years, citing grave risk to the climate.
They won a victory last year when former State Treasurer Tobias Read committed the Oregon Public Employees Retirement Fund to reaching net-zero emissions in its portfolio by 2050. That means OPERF must sell all shares of oil companies and other emitters by that date.
Today, Read’s successor, Elizabeth Steiner, refined Read’s commitment to divestiture by supporting a bill that would make it law, not just because the climate is in peril, but because dirty companies are risky investments in a warming world where the costs for competing, renewable sources of energy are dropping.
The treasury has a narrow mandate when it comes to Oregon’s retirees: It must maximize returns to protect the assets that pay their pensions. That fiduciary duty can conflict with other aims, like dumping assets to protect the planet. House Bill 2200, which Steiner is supporting through testimony today, asserts that the treasury has a fiduciary duty to exit fossil fuel investments, regardless of any effort to slow global warming.
“We are doing this because we are the fiduciaries of this pension fund,” Steiner said in an interview. “We are not doing it because of anything else. We are doing it because the market forces are saying that at some point in the foreseeable future, carbon-intensive investments are not going to be profitable.”
HB 2200 charts a “middle path” for divestment, Steiner says. While environmentalists would like the treasury to get out of fossil fuels immediately, dumping them in a fire sale could result in losses, which would violate the treasury’s duty to retirees, she says.
“We don’t want to get pulled too hard in the direction of immediately divesting from a whole bunch of things that would cause the pension fund to lose money,” Steiner says. “And we also don’t want to have too much delay and lose out and end up with what we call stranded assets, things that we own that nobody wants to buy.”
OPERF has $3.6 billion in fossil fuel investments, accounting for 3.7% of the fund’s $94 billion. That includes assets held in private equity funds, the opaque pools of money managed by companies like KKR & Co. and Warburg Pincus LLC.
Unlike other pension funds that are ditching dirty investments, Oregon seeks to purge its private equity investments of fossil fuels, too. Pension funds have limited control over the private equity funds they invest in, ceding the investment decisions to managers of the funds, which do not trade on public markets like stocks, mutual funds or exchange-traded funds.
“We are including private equity in our calculations, even though it can be a little challenging,” Steiner says. “We didn’t want to shy away from that.’
Oregon was a pioneer in the use of private equity funds as a way to bolster returns for retirees. The state has long invested with KKR, one of the original private equity managers. As of November, OPERF was overweight in private equity, with $26.6 billion invested there, or 27.7% of the portfolio, well above its target of 20%. That compares with $15.6 billion in public equities, or 16.3%. Its target for public equities is 27.5%.
Being overweight in private equity has hurt OPERF’s performance. Public equities, which include shares in companies like Nvidia Corp. and Boeing Co. returned 20.6% from January through November of last year, OPERF filings show, compared with 5.2% for private funds.
In a summary of HB 2200 it released today, the treasury said it is “developing a plan to rebalance the portfolio” because it recognizes that private equity “may lack transparency to the public”; its limited partner role “precludes us from directing the investment decisions private equity managers make”; and the OPERF portfolio is “overallocated” to the asset class.
The treasury is talking to labor groups and environmentalists, and Steiner expects HB 2200 to change as it moves through the legislative process. She called the bill that’s been submitted a “placeholder” to get the conversation started on divestment.
