If all mankind were to disappear, the world would regenerate back to the rich state of equilibrium that existed 10 thousand years ago. If insects were to vanish, the environment would collapse into chaos.”

E.O. Wilson

Naturalist Edward Wilson recognizes a fundamental truth. Humankind’s pen- chant for hubris, our seemingly eternal quest to one up the natural world, has created the conditions for our own demise. As we continue to spew carbon into the atmosphere, we create climate chaos and species decline.

To put a point on it, this is not good.

And of course, while all of us will be impacted, not all of us will be impacted equally.

Those countries, communities, and individuals that did the least to cause climate disaster will be disproportionately impacted by the climate chaos as well as by the inability to recover from its effects.

I remember listening to a college lecture in 1971 from an analyst from either the Pentagon or the Department of State. She laid out a scenario of future climatic shifts that would reduce the amount of arable land and potable water, causing massive human migration, species decline, and geo-political unrest.

It is no longer hyperbole to recognize that we have crossed over the climate chaos threshold. While the ignorance of climate deniers and their disastrous policies make those pushing for carbon neutrality by 2050 seem reasonable, our hubris prevents us from recognizing the urgency of the moment, even as insects and birds vanish exponentially.

We can’t wait for 2050 to act. We need to dramatically reduce carbon pollution and rapidly increase renew- able clean energy now. Our planet is seriously out of balance, egregiously out of equilibrium.

I was struck by something I read from the Dalai Lama, that while humans “have the capacity to destroy the earth, so, too, do we have the capacity to protect it.”

I believe that we can help the earth rebalance itself. But to do so we must act thoughtfully, equitably, and with a great sense of urgency and purpose.

Financial Rebalancing

There is an analogous concept of rebalancing in the financial world. Diversified financial portfolios are made up of a variety of assets in different risk classes, i.e., equities, bonds, real estate, hedge funds, government securities, etc.

The overall goal for the long-term health of your portfolio is to establish a range of asset allocations that provide the best return for the least risk. You develop a target asset allocation range for different asset classifications and then track how your portfolio values match up to your asset allocations. If you can keep your portfolio in this preferred range over time, your portfolio will be in balance, providing the best returns for the least risk.

Of course, as economic activity goes up and down and investment decisions change, asset values rise and fall on a daily, weekly, and quarterly basis. As a consequence, the values of your asset classes change from the targeted allocation you chose. Some will have grown higher than the target range and others fallen below the preferred range. So now what do you do? Well, it’s not rocket science. To rebalance your port- folio, to bring it back into equilibrium, you make strategic decisions to sell off certain assets from one classification and buy assets from another classification. [Note: It doesn’t work quite the same way for private-equity type investments. Often it is more prudent to hold the private-equity type investments until their normal wind-down, but importantly to not invest more].

Financial rebalancing of portfolios is a usual and customary practice. It hap- pens all the time.

Washington State Investment and Pension Funds

The Washington State Investment Board (WSIB) manages nearly $200 billion of state funds and public employee pension dollars. The WSIB has been a good care-taker of these funds for decades and has earned a positive national reputation as one of the best- managed state funds.

The WSIB has approximately $5.5 billion invested in fossil fuel assets. This represents about 2.5 percent of its total portfolio.

Given that fossil fuel assets have been significantly underperforming the broad stock market for quite some time; that the concept of financial prudence defined narrowly or more broadly, as laid out in article two of this series, war- rants selling off fossil fuel assets; that financial rebalancing is standard practice in the financial industry; and given the continued decline in the value of fossil fuel assets, there is no good reason

not to rebalance our state’s Investment portfolio by selling off fossil fuel assets over the next several years and replacing them with assets that provide a better return for a lower risk.

So Now Where Are We?

In the first three articles of this series, “Protecting Our Assets, Protecting Our Asses,” we laid out the moral, economic, fiscal, employment, and social needs bases for rebalancing our state funds out of fossil fuels. We made the argument that it is important for our state and our public employee unions to lead the way in countering the financial industry’s $7 trillion investment in fossil fuels since the signing of the Paris Climate Accords. Rebalancing of fossil fuel assets will send a strong message to institutional investors to do likewise.

We have also shown that by any measure of financial prudence our state funds and pension funds are not being well served by fossil fuel investments.

Finally, we have shown that financial rebalancing is done as a matter of course in the financial industry. And that rebalancing our Washington State funds out of fossil fuels is not only a smart and financially prudent thing to do, it is a step towards rebalancing our earth – protecting both our assets and our asses.