Washington’s public employee pension funds continue to maintain investments in climate change-causing fossil fuels, despite Gov. Jay Inslee’s public push for environmentally friendly policies.
Over the past decades, the Washington State Investment Board (WSIB), which manages the pensions of state employees, has invested billions into fossil fuel companies. According to the environmental group Stand.earth, the WSIB owns at least $7 billion in fossil fuel equity out of a total of over $156 billion in assets. A spokesperson for WSIB provided a more conservative figure of $5.1 billion in fossil fuel assets.
Inslee drew national attention in the 2020 Democratic presidential primary as the “climate candidate.” After withdrawing, Inslee cruised to victory in the Washington 2020 gubernatorial race, winning a third term. Today, Inslee’s brand is still closely associated with climate change, with his Twitter bio proclaiming his “mission to defeat climate change.”
However, Inslee directly appoints five voting members and five non-voting advisory members of the WSIB, which has 15 members. Although he has influence over WSIB, the governor has so far declined to be directly involved in the investment board’s affairs. A spokesperson for the governor said that Inslee does not want to guarantee members of the WSIB support divertment, saying that “it would be inappropriate to expect candidates to make open declarations about something as a condition of getting an appointment.”
As the climate change crisis continues to worsen, activists across the country have championed divestment from fossil fuels as a way to hasten the transition to renewable energy. In 2020, New York state began divesting its fossil fuel assets. Other states and cities such as Maine, Pittsburgh, San Francisco, New York City and Los Angeles have also divested from fossil fuels. According to Richard Brooks, the climate finance director at Stand.earth, more than 1,500 institutional investors around the world have committed to divestment.
However, WSIB does not agree with the divestment approach, instead touting an “active ownership” strategy to try to advance environmental, social and governance concerns. In its 2021 report, the WSIB said that the election of three climate-minded candidates (out of a total of 12 board members) to the ExxonMobil board of directors was a success.
Climate activists such as Brooks are unconvinced that active ownership of fossil fuel corporations is an effective strategy. Exxon is one example that is brought up as a “success,” Brooks said.
“‘If we only had a seat at the table, we can convince Exxon to become a climate champion.’ Exxon has not become a climate champion, and no amount of pressure from shareholders is going to change their business model,” Brooks said.
When it comes to direct fossil fuel equity, Brooks contends that shareholder engagement is futile. However, he says that engagement with banks and other financial institutions is warranted to pressure them to invest in clean energy instead of fossil fuels.
A common argument against fossil fuel divestment is that such a move would incur financial losses and thus violate the fiduciary responsibilities of pension funds. Seattle’s city employee pension fund — which owns more than $60 million in fossil fuel company stock — has used that reasoning to refuse to divest from fossil fuels. WSIB echoes a similar line, claiming that divestment “may lead to unintended bets or imprudent risks elsewhere in a portfolio.”
However, such an argument appears hollow to climate activists who point to the long term underperformance of fossil fuel equity in comparison to clean energy or the stock market as a whole.
Many pension funds who have refused to divest from fossil fuels quickly dropped Russian assets after the Russian invasion of Ukraine in February 2022, suggesting a potential double standard.
“What we’ve just seen in the last six weeks is a number of financial institutions, who have been very opposed to divestment for any political or ethical reasons, very quickly get out of Russia and any exposure to Russian companies, including Russian oil and gas companies,” Brooks said.
Brooks added that many of these institutional investors were willing to incur losses, selling off equity which was essentially worthless.
In March, the WSIB divested $100 million in Russian assets — roughly 0.1 percent of its total assets — in what it calls an “orderly exit” which aligns with its investment strategy.
Some beneficiaries of the pension fund have advocated for climate-friendly investments. According to a spokesperson from the Washington Education Association, which represents teachers whose pensions are managed by the WSIB, the union expressed a desire that investments include “consideration of the short and long-term ramifications of climate change.”
In addition to fossil fuel investments in public markets, the WSIB also has long-term relationships with private equity firms which finance fossil fuel infrastructure projects. One such firm is KKR — one of the main financers of the Coastal GasLink Pipeline — which is being built through Wet’suwet’en land despite the First Nations’ opposition. The WSIB is one of KKR’s first institutional backers, investing billions of dollars in the private equity manager since the 1980s.
“KKR is notorious as being one of the leading supporters of fossil fuel companies through their various funds,” Brooks said.
According to Riddhi Mehta-Neugebauer, a researcher at the Private Equity Stakeholder Project and a doctoral candidate at the University of Washington, the WSIB’s long term relationship with KKR gives the investment board an obligation to engage with the private equity firm to change their investment practices.
“I think it behooves the Washington State Investment Board to engage KKR and urge them to distance themselves from that sort of risk exposure,” Mehta-Neugebauer said.
In February, the Private Equity Stakeholder Project released a report naming KKR as among the “dirty dozen” private equity firms who are financing climate catastrophe.
According to climate finance researchers such as Mehta-Neugebauer, private equity firms are playing an increasingly important role in propping up fossil fuel companies as they become a riskier investment. Private equity firms have few reporting requirements compared to publicly traded companies, making it more difficult to hold them accountable for risky or dangerous investments.
The Snoqualmie Tribe expressed solidarity with the Wet’suwet’en nation in March, calling for the pipeline to be scrapped. Wet’suwet’en hereditary chiefs say that they never gave consent for the pipeline to be built through their territory.
According to Stand.earth’s analysis, the WSIB is also directly exposed to the pipeline, owning more than $15 million in TC Energy stocks, the company which is building the pipeline.
The swiftness of the WSIB’s divestment from Russian assets could give hope to environmentalists who believe that the investment board might be able to implement a similar “orderly exit” from fossil fuels.
According to Chris Phillips, the director of institutional relations and public affairs at WSIB, the investment board reduced its exposure in fossil fuels to just 3.3 percent by the end of 2021. That was in part due to shifts in commodity prices and strategic decisions meant to reduce investments in fossil fuels.
Kirstin Edmark, a retired Washington resident who has testified to the WSIB in favor of fossil fuel divestment, hopes that the investment board divests for the sake of the world.
“There’s not really a good fiduciary reason to be [invested in fossil fuels], and the worsening climate destruction costs Washington,” Edmark said. “The world cannot be sustained, if we keep backing fossil fuels.”
Guy Oron is the staff reporter for Real Change. Find them on Twitter, @GuyOron.
Read more of the Apr. 13-19, 2022 issue.