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Divest Oregon Coalition

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Briefing

Treasury Investment and Climate Protection Act

HB 2601

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Sponsors and Supporters
Background: Oregon Treasury Investments
Overview: Treasury Investment and Climate Protection Act

Why HB 2601 is needed
Divest Oregon and Treasurer agree on several points
Bill compared to Treasurer’s Framework

Private Investment Concerns
Takeaways
Q&A

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Here’s What We Will Cover

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Ending investments in fossil fuels

is the responsible path to ensure

FUTURE FINANCIAL PERFORMANCE OF PERS

and

The Protection of Oregon's Valuable Natural Resources including Timber, Fishing, Tourism and Livability

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Chief Sponsors

Representative Khanh Pham (filed the bill)
Senator Jeff Golden
Representative Mark Gamba
Representative Maxine Dexter

Co-Sponsors

Senator Campos
Senator Dembrow
Senator Gorsek
Senator Jama
Representative Andersen
Representative Neron
Representative Nosse
Representative Walters

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Treasury Investment and Climate Protection Act

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Supported By 98 Organizations throughout Oregon

Tens of thousands of PERS members including all teachers in Oregon through unions OEA, AFT-Oregon, and AAUP-Oregon
Green investment professionals
Youth climate activists
Faith communities
Frontline community organizations such as Oregon Just Transition Alliance
Climate Activists

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Treasury Investment and Climate Protection Act

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Background on

Oregon Treasury

Investments

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Oregon State Workers

Contribute to Public Employee Retirement System (PERS)

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Oregon State Workers

$128 Billion Treasury Total

$90 billion in PERS

12th largest pension fund in US

Contribute to Public Employee Retirement System (PERS)

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Oregon State Workers

Oregon State Treasury Staff

(CFO Rex Kim)

led by

Oregon Treasurer Read

Oregon Investment Council

sets policies for

Treasury Investments

Contribute to Public Employee Retirement System (PERS)

Managed by

$128 Billion Treasury Total

$90 billion in PERS

12th largest pension fund in US

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Oregon State Workers

Oregon State Treasury Staff

(CFO Rex Kim)

led by

Oregon Treasurer Read

Treasury funds are invested

mostly by external Asset Managers

Oregon Investment Council

sets policies for

Treasury Investments

PERS Publicly Traded Investments (~40%)

such as…

PERS Private Investments (~60%) in

?

AND

Contribute to Public Employee Retirement System (PERS)

Managed by

$128 Billion Treasury Total

$90 billion in PERS

12th largest pension fund in US

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These data are from Divest Oregon’s Risky Business report published in April 2022.

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Treasury Investment and Climate Protection Act

HB 2601

Why is it needed?

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Fossil Fuels are Driving the Climate Crisis

Extreme weather, fires, and droughts devastate communities in Oregon & globally and pose a risk to existing Treasury investments.

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Investment Returns are at Risk - so says Treasury Consultants

Treasury’s Climate Risk Assessment (Oct 2021) has warnings of reduced investment returns to the Public Employee Retirement System (PERS) during transition required by climate crisis.

Immediate action needed.

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“Climate Risk Scenario Modelling” Report (Feb 2022)

Treasury asked its climate consultant to determine “What if OPERF divested its public-equity fossil fuels?”

Ortec conducted What-if Scenarios with actual PERS public and private equity holdings data

This resulted in a “Climate Risk Scenario Modelling” report (Feb 2022)

This report was a follow up from the Climate Risk Assessment report (Oct 2021) - provided to Divest Oregon in heavily redacted form

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In February 2022, Ortec provided its “deep dive” analysis about divesting PERS from fossil fuels. A year later, Treasury finally revealed it after pressure from Divest Oregon.

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Treasury’s Consultants’ Findings about PERS Divestment

Holding onto PERS public equity fossil fuel investments is a big financial loser

The loss relative to baseline over the next 5 years for not divesting PERS fossil fuel holdings would be 14.5% in a disorderly transition to a green economy (current state of affairs).

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The World is Rapidly Moving Towards Clean Energy

Investments in fossil fuel companies are volatile
They have underperformed in the past decade and will likely become worthless in the next decades
Oregon should not be left holding the bag

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An example: Volatile fossil fuel investments are not an appropriate long term investment

When the Oregon Investment Council elected to pulled out of all Russian investments due to ethical reasons, by the time they tried to exit the investments… they were worthless
The OIC knew about that volatility earlier and did nothing
Fossil fuel investments will most likely follow a similar scenario
In addition, the Treasury may not have the capacity to monitor all volatile investments

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Generally: Fossil fuel investments have underperformed

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PERS Underperformance Over the Past 10 years - $4-10B

We can estimate an underperformance of PERS by at least $4B by comparing the value of these holdings against their value if they had been invested instead in the S&P 500 Fossil Fuel Free Index over the past decade. This is ONLY for the fossil fuel investments we know about.

Could have helped pay for the unfunded liability losses.

May be higher now because of petrodictators like Putin and the volatility of the fossil fuel marke. Sell high

These data are from the Risky Business report published by Divest Oregon in April 2022.

A report out of Colorado just came out 2 days ago with similar findings.

That report by Corporate Knights finds that Colorado’s pension fund, PERA, is valued at $2.7 billion less than it would have been had it divested from fossil fuels a decade ago. This new study also predicts that if PERA continues to invest in fossil fuels for the next decade, they could lose an additional $6.4 billion. A similar study conducted in 2019 found that PERA had lost $1.7 billion by not divesting from fossil fuels – this new study demonstrates that losses have jumped by a whole $1 billion, just in the last three years!

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“Even though Big Oil CEOs admitted to my Committee that their products are causing a climate emergency, today’s documents reveal that the industry has no real plans to clean up its act and is barreling ahead with plans to pump more dirty fuels for decades to come.”

Chairwoman Maloney of U.S. House Committee on Oversight and Reform in December 2022 memo

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Bill Components

Immediate moratorium on new public and private carbon-intensive investments
Exit from carbon-intensive investments within 6 months, using Carbon Underground 200 list of companies, across all publicly traded OST funds
Exit from existing public investments in the largest identified coal, oil and natural gas producers and developers within 2 years using GOGEL and GCEL list of companies
Exit from existing carbon-intensive private investments by 2035
Establish a portfolio-wide Climate Resilience Plan with an environmental justice framework
Require Treasury transparency and reporting to the public and legislature

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Is it the Legislature’s Job to Tell the Treasury How to Manage Funds?

In October 2021, Treasurer Read and the Oregon Investment Council sent a letter to President of the Senate and Speaker of the House saying that the Treasury could not divest because it was a political, moral decision.
Treasurer Read told legislative leaders that if the legislature is interested in divestment, a statute is required with the provisions that are in our bill – a mandate, a reasonable timeline, and a fiduciary safety valve. HB 2601 is that bill.
In November 2022, Treasurer Read moved closer to our position that there is an investment risk due to climate change and a phase out of fossil fuel investments is needed.

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Treasurer Read and Divest Oregon Agree

Fossil fuel investments create risk to the Oregon Treasury portfolio and it must be “decarbonized”
Treasury needs to maximize sustainable investment returns & green energy provides investment opportunities
Accountability to the legislature is needed

It’s not a question of IF climate risk requires change,

but HOW and WHEN fossil fuel investments

are phased out

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Treasury Investment and Climate Protection Act HB 2601	Treasurer Read’s Framework
Ends NEW investments in fossil fuels immediately	Allows for continued fossil industry support – business-as-usual – through offsets to emissions

Treasurer Read press release in November 2022 that describes a plan for a plan to be released in 2024 - says that PERS is vulnerable to climate risk. The Treasurer’s press release is actually part of the problem.

What we do not agree about.

Offsets don’t work: https://www.theguardian.com/environment/2023/jan/18/revealed-forest-carbon-offsets-biggest-provider-worthless-verra-aoe

Frédéric Hache, executive director of the Green Finance Observatory, said: “The elephant in the room is that offsets are fundamentally not about mitigating climate change, or even about removing past emissions, but about enabling future emissions, about protecting economic growth and corporate profits. Carbon offset markets have had an appalling track record for the past 13 years." Businesses and experts reveal plans for carbon offset regulator (Guardian 7/8/21)

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Treasury Investment and Climate Protection Act HB 2601	Treasurer Read’s Framework
Ends investments in fossil fuels as soon as is allowed by fiduciary duty and statute Transparent phase out complete by 2035	No certainty plan will happen: Plan submitted to the Oregon Investment Council (OIC) in 2024 OIC may not adopt plan Treasurer termed out in 2024 and future Treasurers may ignore the plan A vague target of “net zero” by 2050 Even if framework is adopted, includes slow review of each company in portfolio

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Treasury Investment and Climate Protection Act HB 2601	Treasurer Read’s Framework
Reveals private investments (60% of PERS) using aggregated data while respecting public records statute	Treasury opposes transparency and uses public records statute to keep private investments hidden

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What about the 60% in Private Investments?

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Secret: Contracts and state statute keep private fund information private though PERS beneficiaries have legal right to know what their retirement investments are.
Limited Control: Private fund managers are outside the Treasury. As a limited partner in the fund, Treasury loses control over specific investment choices.
Unknown Valuation: Returns on investments are set by private asset managers — not by a public stock market.
Not Liquid: Lengthy investment contracts — up to 10-12 years!

Concerns about Private Investments in PERS

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Below Average Returns with More Risk

Comparing Oregon PERS to the largest 15 US Pension funds shows that they are below average on their returns while having high-risk, not liquid private investments.

Treasury staff has said “private equity is the secret sauce” for returns for PERS. These data would suggest otherwise.

Private Equity asset class is shown here - this does not reflect the private investments in many other asset classes like Opportunity and Alternatives asset classes.
Private equity firms market themselves as financial wizards that provide above-market returns to institutional investors such as the Oregon Treasury. This is in question.
Many other state retirement funds with little or no private equity investments show better average 5-year and 10-year returns than Oregon’s. Compare to Ohio Teachers and Georgia Teachers.

More details in the Oregon Treasury's Private Investment Transparency Problem report published November 2022.

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Takeaways

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HB 2601 protects PERS by requiring the Treasury to invest in the many equal or better investments – using its expertise and within fiduciary duty.
It’s NOT a question of IF climate risk requires change, but HOW and WHEN fossil fuel investments are phased out.

There’s more risk if nothing is done or it is done too slowly.
There’s no guarantee Treasurer’s framework will be adopted & sustained.

Transparency and accountability are urgently needed especially for the 60% of PERS that is in private investments.

Oregon can be a leader in confronting the climate crisis and the financial risk of continuing investments in fossil fuels.

Takeaways

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Thank you

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Backup Slides

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NEW and Continued Fossil Fuel Investments Don’t Make Sense

Treasury wants to continue to make public and private investments in fossil fuels
Treasury can exit the worst investments - they are already using the Carbon Underground 200 list for their investments for the Oregon Public University Fund

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Percent of OPERF in private equity and related classes, 2001-2021