Fossil Fuels And Prudent Fiduciaries: TIAA Invest Vs TIAA-Divest

Fossil Fuels, Finances, and the Fight for a Sustainable Future

The Push for Fossil Fuel Divestment at Cornell and Beyond

In 2022, Cornell University made a significant decision to halt new fossil fuel investments, prompted by growing concerns over climate change and its impact on the university’s $6.9 billion endowment. This move was encouraged by faculty, students, and staff who recognized the risks that climate change poses to financial stability. Just a year earlier, environmentalists had set their sights on TIAA, a massive retirement fund managing $1.3 trillion in assets, including $78 billion in fossil fuels. Shocked by TIAA’s extensive fossil fuel holdings, these environmentalists launched the TIAA-Divest campaign, arguing that investing in fossil fuels is morally irresponsible given their devastating impact on the planet. TIAA, however, defended its position by citing its fiduciary duties to its participants, emphasizing its responsibility to maximize returns on investments.

Fiduciary Duties and the Climate Conundrum

The Employee Retirement Income Security Act of 1974 outlines that fiduciaries must act in the best interests of their participants with care, skill, prudence, and diligence. Yet, in the context of climate change, this duty becomes increasingly complex. As Ben Segal, an attorney at ClientEarth, aptly puts it, “Fiduciary duties are real, but they are not a suicide pact.” TIAA, which primarily serves university professors and other academic professionals, faces a dilemma: divesting from fossil fuels could lead to lower returns, potentially displeasing its participants, but holding onto these investments could expose the fund to significant financial risks as the planet continues to warm. The question looms large: can fossil fuel investments remain profitable in the long term, given the accelerating climate crisis?

Understanding Climate Risks: From Physical to Transitional

The risks associated with climate change are multifaceted and far-reaching. Physical risks include extreme weather events like floods and fires, which can disrupt industries and economies. For instance, Hurricane Laura shut down Cameron LNG in Louisiana for over a month in 2020, highlighting the vulnerability of fossil fuel infrastructure. Stranded assets pose another significant threat, as societies move away from fossil fuels, rendering investments in coal, oil, and gas increasingly obsolete. The World Economic Forum estimates that phasing out coal power could yield a net gain of $85 trillion, underscoring the financial benefits of transitioning away from fossil fuels. Additionally, the energy transition to renewables is happening at an unprecedented pace, with the International Energy Agency predicting that renewables will surpass coal as the leading source of electricity by 2025. Litigation risks further compound these challenges, as lawsuits against fossil fuel companies for their role in climate change continue to mount.

Navigating Fiduciary Duties in a Changing Climate

Given the mounting climate risks, fiduciaries are compelled to reevaluate their investment strategies. They must prudently assess risks, continuously monitor portfolios, and act in the best interests of beneficiaries. This includes protecting participants from misleading information, diversifying holdings to minimize risk, and avoiding decisions that prioritize short-term gains over long-term sustainability. However, the political polarization around climate change has created a challenging environment for fiduciaries. Greg King, Chair of the Denver Deferred Compensation Retirement Board, captures this tension: “If they divest from fossil fuels, they could be sued by participants who think their investments have underperformed, and if they don’t divest, they could be sued by participants who see fossil fuels as posing an existential threat to humanity.”

TIAA’s Response: Progress, But Not Enough

TIAA-Divest has presented ten demands to TIAA, including immediate divestment from fossil fuels and greater transparency in its portfolio holdings. While TIAA claims to align its investments with a 1.5°C pathway and has pledged to reach net-zero emissions by 2050, critics argue that these actions are insufficient. TIAA’s 2024 climate report, “Staying the Course,” outlines efforts to engage with portfolio companies on climate risks, but activists remain unconvinced. They point to the lack of climate scientists on TIAA’s Board of Directors and the limited fossil-free investment options available to participants. Eleven universities have already passed resolutions urging TIAA to divest, and the American Association of University Professors has joined the call. TIAA-Divest is now implementing a “seven university strategy,” leveraging the collective influence of TIAA’s largest clients to push for more urgent action.

A Call to Action: Transparency, Accountability, and Fossil-Free Futures

The urgency of the climate crisis demands immediate action from retirement funds like TIAA. Caroline Levine, a national TIAA-Divest leader and Cornell University professor, expresses the frustration shared by many: “As university teachers and researchers, we commit to the wellbeing of students, yet our investments in fossil fuels undermine their future.” TIAA-Divest seeks not only divestment but also greater transparency and participant engagement. While TIAA has taken steps to address climate risks, activists argue that these measures are too incremental and insufficient to meet the scale of the crisis. The time for bold action is now, as the planet and its inhabitants cannot afford to wait. Retirement funds must prioritize sustainability, transparency, and the long-term wellbeing of their participants if they are to fulfill their fiduciary duties in a world grappling with climate change.