UC cuts fossil fuels from retirement plan

Core funds in university's defined contribution plans will sell oil and gas holdings

The University of California is ridding its voluntary retirement savings plans of fossil fuel investments, the school recently announced.

As of July 1, the RSP core funds available within the school system’s defined-contribution plans will no longer include oil and gas securities among their holdings. That decision, the school said, follows measures over the past seven years to wean itself from fossil fuels. For example, the school began selling holdings in businesses in thermal coal and oil sand extraction in 2015, and it has since sold fossil fuel holdings from its pension, endowment and working capital assets.

The change is in line with the school’s fiduciary duty to plan participants, it said.

“Our analysis indicates that fossil fuels face, in the long run, strong secular headwinds for demand, and continued price volatility. The sector’s long-term profitability will be in decline and removing fossil fuel companies from our portfolio will have a positive long-term effect,” the school said in a May 17 notice to employees.

“As witnessed recently, short-term performance can be strong and geopolitical risk can mask longer term financial risks by holding fossil fuel-related companies. While this may seem counterintuitive, the current runup in oil prices driven predominantly by the war in the Ukraine may well accelerate the decarbonization of the industrial nations and therefore increase the medium- to long-term risk of holding fossil fuel-related companies,” the school stated. “It is increasingly unrealistic, in our judgment, to be positive on the long-term profitability or fundamentals of fossil fuel reserves. The risk-adjusted returns over the long term are inadequate in our opinion, in particular where current valuations stand.”

The change does not remove all oil and gas exposure within the university’s DC plans, as the UC RSP Growth Company Fund and UC Diversified International Fund include fossil fuel companies in their portfolios. Those funds are not managed by the university, it noted.

The plans also include access to more than 10,000 mutual funds through the Fidelity Brokeragelink option, meaning that participants can opt to invest in outside funds that invest in the oil and gas industry.