CalSTRS Rejects Fossil Fuel Divestment | Chief Investment Officer

A report details CalSTRS policy of engaging fossil fuel companies rather than dumping their stock, which it sees as a last resort and potentially harmful to the portfolio.

The California State Teachers’ Retirement System (CalSTRS) has formally rejected calls from environmentalists for divestment of its fossil fuel portfolio.

CalSTRS, in a required environmental report to the California state legislature, said that divesting of the fossil fuel stocks could have a detrimental effect on the teachers’ pension fund.

“We believe divestment is a last resort action that can have a lasting negative impact on the health of the fund,” the report said, “while severely limiting our ability to shape corporate behavior for long-term sustainable growth.”

CalSTRS says it “is imperative” to continue to actively engage companies on climate change issues, both fossil fuel and non-fossil fuel companies.

For more stories like this, sign up for the CIO Alert newsletter. 

“We are focused on understanding and responding to the risks that climate change presents to our portfolio and to sustainable economic growth,” the report said.

CalSTRS says its engagement with companies will help reduce carbon emissions in the global economy and will position its $248 billion portfolio to be resilient to a changing world.

The pension plan’s refusal to divest is no surprise. The pension plan’s Chief Investment Officer Chris Ailman has made it clear publicly and often that he opposes divestment of fossil fuel stocks.

The organization puts its position officially on the record as part of the report.

California state lawmakers passed legislation in 2018 requiring both CalSTRS and the California Public Employees’ Retirement System (CalPERS) to issue a report by December 31, 2019, on climate change risk in their portfolios and how they plan to deal with it.

CalPERS released its report on Dec. 9; CalSTRS waited until the last minute to issue its report on Dec. 31. Both pension plans will be required to issue a new report once every three years.

The teachers retirement program also rejected calls by environmental advocates for divestment of fossil fuel stocks. The plan said it favored engagement of companies to help advocate their transformation to cleaner energy futures.

Both pension plans are among the most active among public pension plans in the U.S. on climate change issues, having whole groups aimed at engaging corporations over sustainability issues.

That has not satisfied environmental advocates whose goal is divestment by the pension plans of fossil fuel stock.

Both pension plans argued that if they sell their stock or other portfolio holdings in companies, they won’t have a seat at the table to influence corporate behavior.

Janet Cox, an environmental advocate, who has pushed both CalSTRS and CalPERS to divest of their fossil fuel holdings, said the reports made by both pension systems do not name the portfolio companies most contributing to climate risk.

Cox said the intent of the legislation passed by lawmakers was to prepare the staff and boards of the two pension plans to share climate-resilient investment policy, something that is not ultimately occurring.

“These initial reports,” she said of the CalSTRS and CalPERS climate reports, “take some steps in the right direction, but the lack of any nexus between risk reporting and investment policy is troubling and surprising.”

CalSTRS acknowledges that climate change could have an impact on its portfolio. The pension plan is the second largest in the U.S. by assets under management, only surpassed by CalPERS.

“CalSTRS recognizes that the low-carbon transition impacts the performance of our Investment Portfolio across all companies, sectors, regions and asset classes,” said Investment Committee Chair Harry Keiley.

Related Stories:

CalSTRS Says SEC Proposal Weakens Corporate Accountability

CalSTRS Investment Staff Wants Stock Reductions

CalSTRS Seeks to Join Lawsuit to Reform Facebook Governance

Tags: California state legislature, CalPERS, CalSTRS, Divestment, Fossil Fuels

The continued US payroll expansion is owing to a drop in employers’ heebie-jeebies over the trade war with China, according to Ian Shepherdson, chief economist at Pantheon Economics.

Nonfarm payrolls expanded by 145,000 in December, the US Bureau of Labor Statistics reported Friday morning. That was short of November’s blowout 256,000 increase and economists’ estimates of 160,000 for December , but still a good solid number. The unemployment rate last month stayed at 3.5%, the lowest jobless rate since 1969. Meanwhile, average hourly earnings were up 2.9% from 12 months before, short of the 3.1% estimate.

To Shepherdson, writing in his newsletter, “businesses genuinely were disturbed by the intensification of the trade war in the spring and late summer.” But cutting back on hiring “proved untenable in the face of economic growth continuing to run at about 2%.”

The Beijing-Washington agreement to strike an initial accord on trade, known as phase one, has soothed a lot of the worriers, at least for the time being.

For more stories like this, sign up for the CIO Alert newsletter. 

Economic stats are encouraging. The employment part of the ISM non-manufacturing index has risen by 5.1 points over the past three months, which Shepherdson found to be supportive job growth of about 180,000 up ahead.

The increase in wages, which only has happened recently, took so long to kick in, the economist noted, because of sluggish productivity growth. That averaged 1.2% since the end of the recession, versus 2.6% typically. Another factor has been workers’ shyness about clamoring for raises, he said, “probably as a consequence of the trauma inflicted by the crash of 2008.” Only lately has the level of strikes returned to normal, after a big post-recession falloff, he emphasized.

The economy requires 150,000 new jobs each month to keep growing. Tepid employment increases early last year, particularly February’s 56,000 and May’s 62,000, made a lot of Washington policymakers nervous. That, plus signs of slowing global growth and a decline in manufacturing, led to the Federal Reserve late last year deciding to lop its short-term benchmark rate by 0.75 points.

While the employment index has recovered from its early 2019 downdraft, Shepherdson wrote, it has some way to go before returning to headier days in the current recovery. For instance, the number hit 330,000 in February 2018.

“We aren’t holding our breath for that,” Shepherdson cautioned,” given that the peak level was due to the sugar high generated by the tax cuts.” Most economists hold that the stimulus from the federal tax reduction that took effect in 2018 has petered out.