Two of the US’ biggest public pensions could be forced to divest from companies involved in the production of coal if a new bill is passed by California’s senate.
Senate President Kevin de León said on Monday that the California State Teachers’ Retirement System (CalSTRS) and the California Public Employees’ Retirement System (CalPERS) should reflect the state’s values by selling stakes in coal producers.
“Climate change risk is viewed as a material risk assessed across the entire portfolio that could impact current and future investment value.”—CalSTRSThe senator’s proposal comes at the end of a year in which CalSTRS announced a full review of its sustainable investment strategy and CalPERS joined other major investors at the United Nations’ global summit on climate change in September.
De León said he would push for the bill to be passed in January, adding that coal was “a dirty fossil fuel”. The senator is still working out the details of the bill and how far-reaching it is to be, according to the Sacramento Bee.
“We have a proven track record of tackling climate change issues that may pose risks to our investment portfolio.”—CalPERSCalPERS responded strongly to the proposal, stating that “we firmly believe engagement is the first call of action, and results show that it is the most effective form of communicating concerns with the companies we own”.
The statement also detailed CalPERS’ “proven track record” of engaging and dealing with climate change risks within its portfolio. This included CalPERS’ work as a founder member of the Investor Network on Climate Change, and its efforts to persuade governments and policy makers to support a low-carbon future.
“We are also working aggressively with a coalition of 75 international investors worth over $3 trillion in assets to engage with the 45 largest fossil fuel companies to ensure they are taking appropriate action to manage the physical and capital risks associated with climate change,” CalPERS said.
In its response to Senator de Leon’s proposal, CalSTRS highlighted its review of “sustainable investing and risk management” as well as its plan to triple the value of its investments in clean energy and technology in the next five years. CIO Chris Ailman said at the time the pension could raise its allocation as high as $9.5 billion—5% of the current value of its portfolio.
CalSTRS said climate change was “a material risk assessed across the entire portfolio that could impact current and future investment value”.
“CalSTRS believes our investment decisions must carefully weigh our duty to perform profitably with consideration of environmental, social and governance impact of those investments,” it added. “CalSTRS is a patient, long-term investor, and the ultimate impact of our investment in coal is something that we will be assessing in the coming year.”
Norway’s $843 billion Government Pension Fund Global was told by its advisory board earlier this month that divestment from companies involved in fossil fuels was an “ineffective” tool against climate change. The sovereign wealth fund was created to invest the country’s oil revenues, but has been a leader in ethical investment since its inception.
In contrast, several high profile asset owners have chosen to divest of holdings in fossil fuel companies this year. Sweden’s second public pension buffer fund, AP2, said in October it would sell its stakes in fossil fuel companies. The Rockefeller Brothers Fund, built on the fortune of the owners of Standard Oil, also stated its intention in September to reduce exposure to coal and oil sands companies to less than 1% of its $860 million portfolio by the end of this year.
Endowments linked to Stanford, Yale, and Oxford have all come under pressure to dump fossil fuel investments this year, with varying actions taken.
Related Content: CalPERS CIO: Why We Ditched Hedge Funds, Pensions of the World Unite on Climate Change, Cambridge Associates: Bespoke is the Best Way to Divest