Growing up in San Diego makes climate an afterthought. As a child, it hardly felt like there were seasons. The climate felt reliable, hospitable.
My perception changed as I grew and experienced a string of climatic events: evacuation from the seemingly annual California mega-fires, power outages from a hurricane during the most active Atlantic hurricane season on record, sweating through the hottest temperature recorded in Europe. The worldwide reality has shifted, the planet less habitable.
Records for temperature, drought, and destructive weather events continue to fall away each year. At the same time, fossil fuel companies post record profits and enjoy strong stock performance while moving humanity further and further away from global climate goals.
These profits make fund managers unlikely to remove fossil fuel companies from actively managed funds. Even worse, as 401k and other retirement saving structures continue to move towards passive, index tracking funds, the exclusion of these companies requires concentrated effort.
In June, the Thrift Savings Plan, a retirement savings and investment plan for federal employees and members of the uniformed services, began offering a mutual fund window with far more investment options than the previous five. The time for concentrated effort is now.
Currently, the money deposited by the more than six million TSP members, along with matching government contributions, is deposited in a default mix of passive, index tracking funds (C,S,I,F, and G Funds). As of May 31, 2022, Fossil Free Funds, a research and education tool, has graded the two funds underpinning the C Fund (S&P 500) and the I Fund (MSCI) as ‘F’, indicating over 9 percent of the fund in question is exposed to fossil fuels companies.
The F & C Funds contain fossil fuel companies such as Shell, Chevron, and BP. Taken together, the C, S, and I funds leave the TSP (the largest defined contribution plan in the world) with almost 10 percent of its total assets, approximately $42.79 billion, invested in fossil fuels companies.
Through the new mutual fund window, members of the TSP now have the past-due tool to move their money away from the default funds and the underlying stock of fossil fuel companies and reduce this massive stake in fossil capital.
The bet that Big Oil stocks will be a valuable part of your retirement portfolio decades from now is not a good one; you lose either way. The stock’s price includes assumptions that stores of proven reserves currently in the ground will be extracted and burned.
But to prevent climate catastrophe, nearly 60 percent of the oil and fossil methane gas and 90 percent of coal reserves will need to remain in the ground. This means that these companies, given appropriate climate legislation, will soon become valueless assets. There are forecasts of a climate ‘Minsky Moment’, in which rapid adjustment of investor expectations and repricing of affected assets will hit passive investors incapable of responding to rapid market movements hardest.
This describes the vulnerable retirement savers that make up the TSP. And if the stock valuation ends up being correct, you can spend that retirement money in a two degree (Celsius) warmer world.
Outside of the forecasted impacts to personal financial health that will result from expecting growth over the next several decades of these planet-plundering corporations, investment is now needed to finance low-emission infrastructure and other tools to help the transition away from a fossil fuel based society. At this point, the call is even coming from inside the house.
A sitting Secretary of Defense has called climate change an existential threat. Executive Orders have been issued directing the Secretary of Labor to “identify agency actions that can be taken ... to protect the life savings and pensions of United States workers and families from the threats of climate-related financial risk”.
While the government is moving at the speed of bureaucracy to alter the status quo, paychecks every month continue, by default, to fund a business-as-usual approach for planet-plundering corporations.
To move away from the current paradigm of support to these corporations, rapid individual action from across the federal employment spectrum is needed. The introduction of the mutual fund window in June 2022 finally allows a mere 25 percent of retirement savings to be put into funds excluding these companies.
I have already done this, but TSP divestment requires the members of the TSP to take the first step with this unprecedented opportunity to increase the resiliency of their own retirement savings while assisting the global transition to renewable energy. The TSP, in addition to limiting divestment to 25 percent, thinks only two to three percent of members will utilize the window.
Prove them wrong.
The views expressed in this article are mine alone and do not represent the opinion of the Department of Defense.
Christopher Coughlin is a U.S. Navy Lieutenant currently serving as a Meteorology & Oceanography Officer. A native of San Diego, he graduated from Duke University with a degree in Mechanical Engineering before entering the service. The opinions expressed are his own.