Push to use pension funds on climate issue grows

New York Gov. Andrew Cuomo last week proposed a “roadmap” for divesting the $200 billion New York state pension fund from fossil fuel investments, joining a move to use shareholder clout to reduce greenhouse gas-emissions believed to cause climate change.

New York City Comptroller Scott Stringer announced on the same day that he will give the trustees of the five New York City pension funds, valued at $191 billion in October, a proposal to “de-carbonize” their investment portfolios, including fossil fuel divestment.

The announcement by the New York officials came after Norway’s $1 trillion Government Pension Fund Global, fueled by North Sea oil revenue, announced last month that it’s considering divesting holdings in international petroleum companies.

At the One World Summit in Paris this month focused on using public and private finance to fight climate change, the World Bank announced that it will no longer lend money for oil and gas exploration.

Cuomo called for an end to all new fossil-fuel related investments, dedicating a portion of the penson fund to investments that promote clean energy, and the creation of a committee to develop a “de-carbonization roadmap” that keeps an eye on financial risk to the fund.

“Moving the (pension) Common Fund away from fossil fuel investments will protect the retirement savings of New Yorkers,” Cuomo said, apparently reflecting the view that divestment would reduce risk for long-term investors as fossil fuels are phased out.

Gov. Brown joined Cuomo and Washington Gov. Jay Inslee last June in announcing the formation of a coalition of states that would uphold the 2015 Paris agreement on climate change, even though President Trump announced the U.S. would withdraw.

There has been no indication that Brown, a leading U.S. advocate of action on climate change, will use his State of the State address next month to announce, like Cuomo, a fossil-fuel divestment plan.

Brown was heckled during his speech at the United Nations climate change conference in Bonn last month by protestors who want Brown, like Cuomo, to ban hydraulic fracturing or “fracking” in oil and gas fields.

“Poisoned wastewater” protestors chanted, the Sacramento Bee reported. “Keep it in the ground.” As the heckling continued, Brown shot back: “Let’s put you in the ground so we can get on with the show here.”

Brown signed legislation in 2015 requiring the two largest state pension funds, CalPERS and CalSTRS, to divest coal holdings, whose value had plummeted before the election of President Trump. CalPERS coal investments were valued at $83 million two years ago.

The governor won a major legislative victory in July when, with a handful of Republican votes, California’s cap-and-trade program was extended to 2030. Companies must buy a permit to release greenhouse gases, an innovative program regarded by some as an international model.

Brown told climate activists meeting in Hamburg in July at the Group of 20 summit, a gathering of the world’s largest economies, that he plans to hold a “Global Action Climate Summit” next year in San Francisco Sept. 12-14.

“Join us,” says his website for the event. “We’re bringing together state and local leaders, businesses, scientists, students, nonprofits — anyone who recognizes that climate change is an existential threat to humanity. We are committed to rolling back the forces of carbonization.”

CalPERS was a key organizer of a coalition of 225 large investors with $26 trillion in assets launched this month to use “engagement” or persuasion, rather than divestment, to urge corporations to reduce greenhouse-gas emissions.

Climate Action 100+ will initially target 100 companies responsible for 85 percent of corporate greenhouse-gas emissions. The wide-ranging list includes fossil fuel firms like Exxon Mobil and manufacturers like General Motors, General Electric, and Boeing.

Each of the large investors is expected to engage at least one of the companies on the focus list each year. How companies respond to the engagement will be publicly reported annually by the coalition.

A CalPERS board member, state Controller Betty Yee, announced Climate Action 100+ at the Paris summit. Anne Simpson, CalPERS sustainable investments director, said aligning the business plans of large emitters with the 2015 Paris agreement will have a ripple effect.

“Our collaborative engagements with the largest emitters will spur actions across all sectors as companies work to avoid being vulnerable to climate risk and left behind,” Simpson said.

CalPERS and CalSTRS prefer engaging with companies rather than divesting their stock. The pension funds remain a shareholder with a “seat at the table” to advocate change. Their portfolios retain diversity and investment opportunity.

Wilshire consultants estimated earlier this year that a half dozen CalPERS divestments, beginning with apartheid South Africa in 1986, have resulted in a total loss of $7.9 billion, including transaction costs and foregone investment returns.

Resolutions voted on by shareholders is another way CalPERS and other pension funds push companies to act on climate change.

Last May, for example, CalPERS and others got shareholder approval of an Exxon Mobil report on its climate change financial and global policy risks, technological advances, and oil and gas reserves under the Paris agreement to limit global warming to 2 degrees Celsius.

A report this month by a business-backed group, contending the CalPERS environmental agenda has harmed investment yields, said for the first time large private-sector investors voted with CalPERS and others on several shareholder climate resolutions this year.

“This shift to activism among big investment funds – Vanguard and State Street followed BlackRock’s lead – was notable in its impact this past proxy season and could portend a common theme in future seasons,” said the American Council for Capital Formation report.

The report, “Point of No Returns, cited poor performance by CalPERS investments in four clean energy private equity funds and five solar energy firms as an example of how an “environmental, social and governmance” investment policy harms investment returns.

A CalPERS response said its investment in the four private equity funds is $600 million in a $26.4 billion private equity portfolio of about 240 funds. Global investments in about 10,000 companies are largely through a passive index, CalPERS said, not by picking individual stocks.

“This report cherry picks a thin set of loosely-related facts to subliminally promote an anti-pension ideology,” said CalPERS. In its 40-year history, the Council replied, “we think it’s the first time we’ve ever been accused of advancing subconscious messaging!”

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com. Posted 26 Dec 17

7 Responses to “Push to use pension funds on climate issue grows”

  1. Michael Genest Says:

    So, selling stocks to another investor who will make excellent profits somehow reduces GHG emissions? I can not think of a better example of “progressive” logic.

  2. S Moderation Douglas Says:

    Not that I (totally) disagree, Michael, but the porn industry is very lucrative also. Should CalPERS buy some of that action, also? I mean, if we don’t, someone else will.

    Also, it creates jobs right here in California.

  3. Charles Says:

    Pension funds have no business using investment money to make political statements. They have a fiduciary obligation to future and current retirees which is required by law.

  4. Michael Genest Says:

    1. It’s not that profitable, as I learned when I was hired to research the condom initiative.
    2. My philosophy is that government should draw and enforced the boundaries in which trade may happen, with as little interference as necessary. Investors should work within those bounds to maximize their own profit. Oil and gas being essential to the economy, as long as their pollution is controlled, are legal. Responsible investors should evaluate them only on their potential profitability. If PERS does otherwise, it is short changing the very fund to which they have a fiduciary responsibility.

  5. SeeSaw Says:

    It unfortunate for the bottom line, but I think its right to take a moral stand in order to protect others from themselves. Look what smoking did to all those who were unaware of the consequences of that habit, prior to the current knowledge about such. I lost my mother to massive stroke at the age of 74–she was a lifelong smoker, and I also lost my lifelong best friend to COPD–a result of her chosen lifelong habit..

  6. S Moderation Douglas Says:

    As I said, not that I (totally) disagree. But I also don’t think that “as long as it’s legal (and profitable)” should be the main criteria. (As SeeSaw replied, on tobacco investments.) Some, (Ed Ring, among others) think an important consideration should be investing in California infrastructure. And “what’s profitable” often isn’t known in advance.

    ACCF:

    “In its 40-year history, the Council replied, “we think it’s the first time we’ve ever been accused of advancing subconscious messaging!”

    I doubt that. The “report” Ed mentions is more of a screed. If they had included some data, perhaps, on CalPERS ESG Investments overall and how successful (or not) they have been historically, it might have been useful. What they actually did was highlight the growing unfunded liability and imply that it was the result of ESG investments.

    To double down on their audacity, in their rebuttal to CalPERS rebuttal, they replied: “The unfunded liabilities grew year-over-year to an astounding $138 billion. Compare this to ten years ago, when CalPERS was overfunded by $3 billion.”

    Like almost every other pension fund. Ten years ago? ACCF, were you aware of the thirty plus percent loss in assets lost in 2008-09?

    Although I do agree the “messaging” was not so much subconscious. It was more “blatantly misleading.”

  7. CalPERSon Says:

    Forget political divestment — CalPERS should get out of oil and gas simply because it’s not a good investment for the long term. The negative effects of climate change are ramping up faster than expected and will put tremendous pressure on governments to decrease fossil fuel use. 75% or more of all new power plants worldwide from now until 2040 will be renewables. By 2023 solar and wind generation will be cheaper than fossil fuel — without subsidies.

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