CalPERS Would Be Forced to Divest from Private Prison Companies

The California Public Employees’ Retirement System (CalPERS) would be forced to divest its holdings in private prison companies under legislation introduced by Assemblyman Rob Bonta.

Bonta’s bill will begin to be considered by his fellow lawmakers after the state legislature reconvenes on Jan. 7. It comes after the Trump administration’s policies earlier this year that resulted in the detention of thousands of children and their families in two facilities run by two US private prison companies, CoreCivic and GEO Group.

“These companies are not only facilitating the Trump administration’s political agenda, but profiting from the cruel, zero-tolerance immigration policies that have torn innocent children from their families,” Bonta, a Democrat from Oakland, told CIO in an interview. “This is inhumane and not in line with California’s values.”

Both companies contend they are acting as contractors with the federal government and have no role in setting the Trump administration policy.

The issue of divestment from the two companies is expected to come up at Monday’s investment committee meeting with representatives of various advocacy groups appearing in person to call on the pension system to divest. Megan White, a CalPERS spokeswoman, said the pension system has not taken a position on the legislation.

The investment committee is not scheduled to vote on the matter at today’s meeting. CalPERS has about $12 million in securities of Core Civic and GEO Group, a relatively small amount given the size of the $345.6 billion pension system.

CalPERS’s role as the largest US pension plan, however, means divesture would certainly bring worldwide media attention, spotlighting the activities of CoreCivic and GEO Group. The companies  contract with both federal state and local governments for the housing of detainees.

“It would certainly have a public relations effect,” Bonta said of the divestment.

Generally, the investment committee has opposed divestment efforts, though CalPERS divested from thermal coal companies after the legislature required the pension system to do so in 2015.

Prior divestment legislation also forced CalPERS to divest from companies that do business in Sudan and Iran. The pension system’s investment committee approved its own plan to divest of tobacco companies back in 2000, and more recently in 2013, the divestment of two firearms manufacturers, Smith & Wesson Holding Corp. and Sturm, Ruger & Co.

The bill would also require the California State Teachers’ Retirement System (CalSTRS) to divest from private prison companies, but the investment committee of the $219.1 billion system already approved divesting last month of CoreCivic and GEO Group in an emotional 6-5 vote.

Bonta said he wanted to be sure that a future CalSTRS Investment Committee could not reverse the decision, particularly given the close vote.

CalPERS investment staffers and investment committee members have argued that continuing to invest in companies allows them a voice at the corporate table, engaging companies on their environmental, social and governance (ESG) policies. They have particularly made the argument in face of calls by environmental advocates to divest from gas and oil companies.

Bonta argues that engaging the two private prison companies would make little difference.

“I think they could probably do some things to fiddle around the edges, but it won’t change the fundamental fact that they are for-profit companies,” he said. “They’re there to maximize revenue and reduce costs.”

Bonta’s bill does give a legislative out to CalPERS, as they would not have to divest if the pension system could show divesting was affecting the pension’s system fiduciary duties to pensioners, but given the small size of its investment in the two private prison companies, that might be a difficult argument to make.

Divestment has cost CalPERS when it comes to tobacco. A new study by CalPERS general investment consultant Wilshire Associates shows that divesting from tobacco has cost CalPERS more than $3.5 billion in lost investment gains since divesture began 17 years ago, but that other divestments have had little or no effect.