Frequently Asked Questions
Why is the Fossil Fuel Divestment Act the right choice for Illinois?
“Investing in new fossil fuel infrastructure is moral and economic madness. Such investments will soon be stranded assets — a blot on the landscape and a blight on investment portfolios.”
UN Secretary General António Guterres, 2022
What is the Fossil Fuel Divestment Act?
The Fossil Fuel Divestment Act (HB3961/SB0130) addresses the top driver of the climate crisis – burning fossil fuels – while protecting Illinois pension funds from the undue financial risk of investing in fossil fuels. The Act requires the five pension fund systems under the State’s control:
To immediately cease new direct fossil fuel investments;
To cease new indirect investments in the sector, unless the Board of Trustees is satisfied that the investment vehicle is unlikely to have over 2% of its assets invested in coal, oil, or gas producers;
To divest current fossil fuel holdings from the top 200 fossil fuel companies in accordance with sound investment criteria, no later than 5 years after the bill’s enactment; private fossil fuel investments must be divested within 10 years.
To publicly post all holdings in the public market and private equity investments on their website on a quarterly basis; and
To publicly disclose the methods and results of any climate-related financial risk analysis of its fossil fuel holdings.
Why Should We Care If Our Pensions Finance the Fossil Fuel Industry?
The pollution from burning fossil fuels (coal, gas, and oil) is overheating our climate.
Despite many pledges and efforts by governments to tackle the causes of global warming, CO2 emissions from energy and industry have increased by 60% since the United Nations Framework Convention on Climate Change was signed in 1992.
Global overheating has already displaced over 600 million people who are now living outside of environmental conditions that best support life and, for every two-tenths of a degree beyond the current level of heating, an additional 140 million more people will suffer increasing food scarcity and heat-related deaths.
A Climate Imperative, Yes - But Why Is Pension Divestiture a Financially Prudent Decision for Illinois?
The fossil fuel industry has underperformed the market for the last decade and has a negative long-term outlook. Independent financial analysts at the Institute for Energy Economics and Financial Analysis (IEEFA) concluded that prolonged investment in fossil fuels is no longer financially prudent.
The fossil fuel sector has underperformed the S&P 500 in seven of the last 10 years, delivering the lowest performance and highest volatility of any S&P sector.
The fossil fuel industry will continue facing unstable prices from competing technologies, increased regulation, damages awarded in lawsuits, as well as physical damage to supporting infrastructure.
Illinois pension funds have a fiduciary responsibility to maximize value for their pensioners, both current and future, and must, therefore, account for these risks by divesting from fossil fuels to avoid losses.
What Have Financial Experts Said About the Fiscal Impact of Fossil Fuel Divestment on State Pension Systems?
Multiple studies have concluded that fossil fuel divestiture raises profits and lowers risks:
Two major financial management firms, BlackRock and Meketa, have separately concluded that investment funds have experienced no negative financial impacts from divesting from fossil fuels.
Corporate Knights came to the same conclusion for the State of Colorado, finding the Colorado Pension Fund lost $2.7B by not divesting from fossil fuels over the prior ten years.
Former SEC Commissioner and fiduciary law expert, Bevis Longstreth, has noted that funds open themselves to financial and legal risk by not divesting.
In testifying in favor of the Vermont bill to divest its pensions from fossil fuels, financial expert and Director of Financial Analysis for Institute for Energy Economics and Financial Analysis (IEEFA), Tom Sanzillo, stated, “The claim that investments in fossil fuels are in the best interest of the members of the retirement system does not comport with the industries’ return profiles or the outlook for the future….”
But Aren’t Fossil Fuel Companies Investing in Clean Energy?
Nope, not really. Where they might be, they are investing so little that it is having a marginal impact.
The International Energy Agency (IEA) reports the fossil fuel industry devoted only 1% of its capital expenditures towards developing clean energy.
Numerous independent analyses have found no evidence to support the oil and gas industry’s claim of energy transition alignment.
How Widespread Is Fossil Fuel Divestment?
The fossil fuel divestment movement is “the fastest growing divestment campaign in history.” Organizations, businesses, municipalities, and educational institutions, with assets valued at more than $40.76 trillion have committed to divestment.
Major public pension fund systems have chosen to divest, including Maine and Oregon funds.
Major Illinois institutions have chosen to divest. These include the City of Chicago, the Chicago Teachers Pension Fund, Loyola University of Chicago, The Field Museum, and The MacArthur Foundation.
The financial logic of the divestment movement has been increasingly accepted by large financial institutions.
Will Illinois Pension Funds Be Able to Continue with Their Current Shareholder Engagement Activities on “Environmental, Social and Governance” (ESG) Issues?
Yes, the bill is structured to allow for both divestment from fossil fuel companies and shareholder engagement with fossil fuel companies on ESG issues.
However, it is unlikely that shareholder engagement will persuade any fossil fuel companies to stop extracting fossil fuels since that is their core business and primary profit center.
While the funds may continue shareholder engagement activities, without the threat of divestment little will be done to encourage climate action:
There have been no substantive wins in over 30 years of shareholder engagement with the industry on climate change. In fact, a 2023 study shows how industry has discouraged shareholders from demanding climate action, including by suing “activist” shareholders.
According to published reports by Climate Action 100+, none of the top 200 fossil fuel companies has published a realistic plan to align with the Paris climate goals.