Engagement Without Teeth Is Just a Discussion

On January 29, 2026, the Washington State Investment Board (WSIB) presented an overview of what they do and how they do it during a work session of the Washington State Senate Ways and Means Committee hearing.

The WSIB has over $230 billion in assets under management, including 18 pension funds, six Labor and Industry funds, and 16 university funds. The comingled investment fund is where the pension funds are, and they account for $185 billion of the total investment funds. This fund has grown from $80 billion 10 years ago to $185 billion today, making the WSIB one of the largest pension funds in the country.

The WSIB has made average returns of 8.4% over the last 20 years, a bit lower if you take out an exceptional and abnormal year, 2021, when the fund made 28.7% in returns. It should be noted that sustainable funds (funds based on environmental, social, and governance criteria) have begun to out-perform traditional funds, such as those invested in by the WSIB.

Knowing that, following the work session, the Committee would hear a couple of bills that dealt with divestment of coal assets and ethical investment screens, the WSIB spent some time describing their investment mandate, philosophy, and practices.

Washington State law gives the WSIB the “authority to establish policies and procedures designed exclusively to maximize returns at a prudent level of risk.” The WSIB also has “full power over their funds to invest, reinvest, manage, contract, or sell or exchange investments acquired.”

The WSIB’s preferred investment philosophy and practice is to hold significant positions in passive equity strategies, meaning that they allow third-party money managers and brokers to choose the investment portfolio for the funds under their care. In fact, the WSIB is proud of the fact that they do not pick and choose companies to invest in but rather have investments across all industries, the country, and the world – “a little slice of everything.”

Addressing the issue of divestment from fossil fuels, the WSIB began by stating that they have a “fiduciary obligation to always act in the best interests of their beneficiaries." No one would expect anything less.

Specifically, they said, “we do have investment beliefs that touch on this theme of divestment. First, any kind of investment or asset class restraint you put on our portfolio will likely lower returns over time (there is lots of research on that). Second, it will raise costs. And finally, we believe that corporate engagement is really the way to move the needle – you give up your voice if you give up ownership in these stocks.”

There is a lot to unpack there, so let’s take a little time to sift through what they said and what they didn’t say. But from the outset, it is important to point out that when you manage the amount of funds the WSIB does, you are never without a voice unless you voluntarily cede it to third party managers.

First of all, those of us testifying on the Coal Act are asking that the WSIB divest, prudently and over time, the $2.6 billion they have invested in coal producers. Many of us have further suggested that the WSIB divest from another $5 or $6 billion invested in oil and gas hydrocarbon producers. This is quite different from asking the WSIB to back away from their current asset allocation and climate blueprint/ framework for encouraging corporate hydrocarbon consumers to lower their carbon emissions and develop renewable energy transition plans. No one is asking the WSIB to abandon their climate blueprint work; if anything, we are urging them to be bolder with this work.

So, the first thing is to get the WSIB to get rid of existing fossil fuel producer assets and to not purchase any more debt (bank loans, bonds) that finances more fossil fuel extraction.

Why do this? To do our part in helping to save the planet – well, sure. But also, because fossil fuels are an underperforming asset. For the past 10 years the value of non-fossil fuel S&P 500 stocks performed four times better than fossil fuel assets. And since 2022 the stock market, as measured by the S&P 500, has nearly doubled (92%) while the value of fossil fuel assets has risen 17%.

It's true that an investment’s past performance is no guarantee of its future returns, but the fossil fuel sector is facing long-term competitive risks like never before. Renewable energy, electric vehicles, and electrification are seeing growth around the world and even in the US. The fossil fuel sector’s preferred low carbon technologies don’t work. And the sector’s pivot into producing plastics and petrochemicals is faring poorly.

Will divesting from asset holdings of direct producers of fossil fuels lower returns? Perhaps a smidge, particularly if you divest it all at once, but the re-turns will still meet the WSIB’s fiduciary responsibility. And then again, maybe not over the long-term. If you jettison underperforming assets for stronger earning assets over time, you will, in fact, bolster your fund returns. And, if there is a realistic accounting of the financial risk caused by direct fossil fuel assets through climate disaster effects, then just about any other asset would produce safer long-term returns.

Will divesting direct fossil fuel assets increase the cost of investing WSIB pension assets? Maybe. A third-party manager would usually charge more for a customized investment portfolio than for one that is just pulled off their shelf. But there are now a great many fossil-fuel strategies “on the shelf” and available to the WSIB. And how much are we really talking about? Financial advisors I have spoken with suggest that the cost of slightly modifying the portfolio should only have marginal costs associated with it. For funds as large as the WSIB, fees for investment products are typically set through negotiation. Given the large portfolio the WSIB brings to the table, to my way of thinking, they could use their financial heft to negotiate a competitive cost. Finally, any increase in management fees would likely be partially or fully offset by superior long-term performance of a fossil-free portfolio as the fossil fuel sector faces long-term challenges, such as declining fossil fuel stock values, increasing social costs due to fossil fuel caused climate disasters, and increasing litigation costs over the damage caused from continued fossil fuel extraction and use.

Is corporate engagement, rather than divestment, the best way or the only way to encourage corporations to reduce their carbon emissions and adopt strong renewable energy transition plans? No. But again, let’s be clear what we are talking about.

The WSIB is not going to convince Exxon-Mobil to stop extracting oil or natural gas. Unless stopped, they will extract every barrel of oil and every cubic foot of gas that they can profitably extract and sell. However, the WSIB’s divesting from direct fossil fuel producers and not purchasing more fossil fuel debt/loans sends a strong message to other institutional investors that you can earn decent returns on your investment and save the planet at the same time, which will protect long-term returns from the worst climate disasters.

Can engagement through voting on corporate shareholder resolutions, discussions with corporate management, and setting strong blueprints for carbon emission reporting and assessing climate risk help change corporate practices? Sure. But the history of corporate engagement over asbestos and tobacco brings into sharp relief how slow and incomplete this process can be. With global temperatures rapidly rising and climate disasters intensifying, we don’t have the luxury of time.

The urgency of the climate crisis we face demands that we act thoughtfully but immediately.

So, the answer regarding fossil fuels is not to divest or to engage. You have to do both. But we must be clear: engagement without any teeth to back it up , is just a discussion.

Finally, the WSIB’s mandate to maximize returns for their pension beneficiaries at a prudent level of risk should not be an excuse for slow-tracking the divestment of direct fossil fuel assets. When the continued extraction and use of fossil fuels increasingly create catastrophic climate disasters, the financial risk of holding fossil fuel assets is exacerbated, making direct investments in fossil fuels categorically imprudent.

As British economist John Maynard Keynes said, in addressing the shortcomings of relying on market forces to address economic crises, “In the long run we are all dead.”

The WSIB and our unions have the opportunity to acknowledge Keynes’ warning while protecting public employee pensions over the long term and playing an important role in combatting climate change. But this requires not passively investing in direct fossil fuel assets and producers. It requires us to take responsibility for our choices and do some serious picking and choosing. It requires us to act in the best interests of our members, past, present, and future, as well as the planet we live on.