PESP sends letter urging the University of California to uphold fossil fuel divestment commitment
April 15, 2025
Today, PESP wrote a letter expressing concerns about the University of California’s potential reversal on divesting from fossil fuels. PESP is urging the University to maintain its commitment to divestment, citing the ongoing financial and climate risks associated with fossil fuel investments.
The letter highlights research showing that fossil fuel investments have underperformed compared to other investments and points to the increasing economic and environmental damages caused by climate change.
The text of the letter to the University of California is as follows:
Jagdeep Singh Bachher
Chief Investment Officer & Vice President of Investments
University of California Office of the President
1111 Franklin Street, Oakland, CA 94607
April 15, 2025
Dear Mr. Bachher,
We are writing to share our concerns about your recent statements indicating that you are now considering investments in fossil fuels, despite the fund divesting from fossil fuels just five years ago. In a press release issued May 19, 2020, you had stated that “Today we remain convinced that continuing to invest in fossil fuels poses an unacceptable financial risk to UC’s portfolios and therefore to the students, faculty, staff and retirees of the University of California.”
The financial risks noted in 2020 remain risks today.
Projections of economic damages from the climate crisis are soaring, creating a material concern for fiduciaries with a long-term investment horizon. Since 2021, the US alone experienced climate-related weather disasters costing over $460 billion that caused over 1,800 deaths. Climate change damages are projected to cost $38 trillion a year by 2049, cutting nearly 20% of global income.
As fiduciaries stewarding the retirement benefits and endowment of the California University community, the University of California is well positioned to understand the material threats of climate change. In fact, the University of California investment team has developed extensive research on the value of sustainable investing as a path to stronger long-term returns. The 2024 UC Investments TCFD report found that “negative screening of fossil fuel reserves has proven to be an effective way to manage climate-related transition risks. At the same time, excluding fossil fuel reserve owning companies has yielded higher one-year, five-year and 10-year net returns versus the MSCI ACWI IMI Index.”
California is among the top five states experiencing economic impacts from climate change already, including droughts, floods, sea level rise and devastating wildfires.
The January Eaton and Palisades fires in Los Angeles burned close enough to the University of California Los Angeles (UCLA) campus to prompt evacuation warnings. And the UCLA Anderson School of Management reported that the damage from the fires resulted in total property and capital losses ranging from $76 billion to $131 billion. The research found the state’s GDP losses of around $4.6 billion and wage loss of $297 million for LA-area businesses and employees. The research found that “All wildfire mitigation investments will be justified, considering the astronomical costs associated with wildfires” including higher insurance premiums, unaffordable housing, and health risks from wildfire pollution.
UCOP’s investment portfolio has exposure to capital markets around the world, and therefore investment decisions consider risks and opportunities at a global scale. This combined with the long term investment horizon of pension fiduciaries gives investment staff an advantageous perspective not beholden to short-term political trends.
The global LNG market is facing the threats of trade wars and tariffs that create more instability, with some exports being stopped indefinitely. On the flip side, continuation of LNG exports also pose risks, one being an increase in domestic energy prices, as the outgoing Department of Energy chief warned in December, saying “Unfettered exports of LNG would increase wholesale domestic natural gas prices by over 30%.”
Your statements expressed confidence in the financial soundness of fossil fuels, but private equity investments in fossil fuels have been, and remain, a risky investment. The 2007 implosion of oil and gas heavy EnerVest’s $2 billion energy fund is a stark reminder of how investment in fossil fuel can lead to disastrous results for investors and pensioners, with investments in this case left with pennies on the dollar. In 2024, an extensive report by the Institute for Energy Economics and Financial Analysis revealed that institutional investment fund portfolios with fossil fuels consistently underperformed peer funds without fossil fuels over the last decade. Just last week, as new tariffs from the US administration went into effect, private equity firms heavily invested in fossil fuels experienced a direct financial hit, including Kayne Anderson Energy Infrastructure Fund (KYN) as one example. As of April 9, 2025, KYN was down 17.8% compared to S&P 500, which was down 9.5%.
Your statements also highlighted power generation needs due to data centers as a consideration in your openness to reversing course and investing in fossil fuels. Research and current market disruption by AI models such as DeepSeek, reveals that some of these demand forecasts and assertions could be overstated, presenting a risk to investors who rush in without due diligence. Just in the last few months, Microsoft has paused multiple data center deals around the globe.
The 2024 Private Equity Climate Risks Scorecard revealed alarming new details about the extent of private equity investment and the environmental impacts. The Scorecard revealed that just 21 private equity firms are responsible for over 1.17 gigatons of annual emissions. This research provides valuable insights for institutional investors with private equity, private infrastructure or real assets allocations, and should be integrated into climate risk assessments, due diligence protocols, and sustainability policies.
We urge you, and the UC Regents Committee on Investment, to seriously consider current analysis and to stand by the commitments and divestments made five years ago. Taking steps to make new investments in fossil fuel would be irresponsible, putting the students, faculty, staff and retirees of the University of California at risk, in addition to financing further climate risks globally.
Sincerely,
Alissa Jean Schafer, Climate Director, Private Equity Stakeholder Project
Cc:
Wendy Pulling, Director of ESG Integration
Arthur Guimaraes, COO
UC Regents Committee on Investment
1https://www.pionline.com/esg/after-divesting-fossil-fuels-university-california-chief-investment-officer-jagdeep-singh
2https://www.universityofcalifornia.edu/press-room/ucs-investment-portfolios-fossil-free-clean-energy-investments-top-1-billion
3https://www.ncei.noaa.gov/access/billions/
4https://apnews.com/article/climate-change-damage-economy-income-costly-3e21addee3fe328f38b771645e237ff9
5https://www.ucop.edu/investment-office/sustainable-investment/sustainability-framework/index.html
6https://www.ucop.edu/investment-office/final-2024-tcfd.pdf
7https://calmatters.org/environment/climate-change/2023/11/climate-change-california-national-climate-assessment/
8https://dailybruin.com/category/breaking/pacific-palisades-fire
9https://www.anderson.ucla.edu/about/centers/ucla-anderson-forecast/economic-impact-los-angeles-wildfires
10https://www.reuters.com/business/energy/trade-war-with-china-casts-dark-cloud-over-new-us-lng-projects-2025-02-04/
11https://www.npr.org/2024/12/18/g-s1-38746/granholm-liquefied-natural-gas
12https://finance.yahoo.com/news/2-billion-energy-investment-goes-141425707.html
13https://ieefa.org/sites/default/files/2024-02/Passive%20Investing%20in%20a%20Warming%20World_February%202024.pdf
14https://markets.businessinsider.com/news/stocks/private-equity-stocks-crash-as-tariffs-threaten-dealmaking-for-kkr-and-apollo-1034547424
15https://www.google.com/finance/quote/KYN:NYSE?comparison=INDEXSP%3A.INX&window=5D
16https://pestakeholder.org/news/critical-questions-about-private-equitys-big-bet-on-data-centers/
17https://www.bloomberg.com/news/articles/2025-04-03/microsoft-pulls-back-on-data-centers-from-chicago-to-jakarta
18 https://www.peclimaterisks.org/2024scorecard/
19https://pestakeholder.org/news/climate-standards-and-investor-toolkit/
