CalPERS is a leader in forming a first-ever global alliance of large investors that would use its combined shareholder clout to engage companies with the most carbon emissions, believed by scientists to contribute to climate change.
The CalPERS board was told last week that its staff is working with others to complete the plan in time for an introduction at a United Nations investor meeting next month in Berlin, followed by a public launch in November at a UN climate change meeting in Bonn.
An inspiration for the alliance was a CalPERS discovery, following a UN Montreal agreement in 2014 to measure the carbon footprint of investments, that 80 companies among its 10,000 holdings were responsible for 50 percent of the carbon emissions.
Formal work began after a meeting last September of UN groups, large investors, and the Global Investor Coalition. The co-chairs were state Treasurer John Chiang, a CalPERS board member, and Scott Stringer of the New York City pension system.
“What we said was we would spend some time together working out whether we could identify what an engagement strategy would look like so that we could globally, as an alliance, ask for the same things of these companies and really bring our collective influence to bear,” Anne Simpson, CalPERS sustainable investments director, told the board.
The goal of the “Global Climate 100” initiative is to meet the Paris climate accord target of reducing carbon emissions by 80 percent by 2050, said a CalPERS presentation last April to Ceres, an advocate of business environmental action.
President Trump announced last June that the United States would withdraw from the Paris climate accord signed by 195 nations, calling it a “draconian” international deal that would impose unfair environmental standards on American businesses and workers.
“I was elected to represent the citizens of Pittsburgh, not Paris,” the president said.
In a statement responding to Trump, CalPERS said the Paris agreement “makes financial sense” and the goal of limiting global warming to 2 degrees or less has growing support among businesses and financial firms.
“The Paris Agreement enables us to manage material risk and build opportunity in our investment portfolio,” said Marcie Frost, CalPERS chief executive officer. “Supporting its goals ultimately benefits our members and their long-term retirement security.”
Most members of the new global alliance are assumed to have similar portfolios. The lead on engaging companies in a market would be taken by an investor familiar with the regulatory framework and language, possibly with a track record with the companies.
A plan to “ensure confidentiality” about the engagement has been worked out. A steering committee would have a staff member from each of the regional investor networks, and each region would nominate an investment owner or manager.
“CalPERS has volunteered to be the investor for the United States, which the others have agreed,” Simpson told the board.
She said organizing the alliance, “I think we are nearly there,” is being done with “some delicacy and care and courtesy” and with input and ideas from a number of organizations and regional investment networks.
If the plan is ready for the United Nations-supported Principles for Responsible Investment in Person meeting next month, she said, the alliance can issue a call for other investors to join the coalition, something never tried before.
“We have practiced by having a shared statement, which was very powerful in the runup to the Paris agreement,” Simpson said. “But to say, ‘Right, we will all roll up our sleeves and see with our common share holdings whether we can move these companies in a good long-term direction,’ that’s a piece of work. But anyway, I think we have made good progress.”
An investor global alliance on climate change might ease some of the pressure on the California Public Employees Retirement System to divest its holdings in major producers of carbon emissions.
RL Miller of Climate Hawks Vote reminded the CalPERS board last April that even though a Democratic Party resolution in 2015 urged CalPERS to divest fossil fuel, two of its largest holdings are in Exxon and Chevron.
Miller contended that a new policy adopted by CalPERS could be summed up as “no divestment ever.” State Controller Betty Yee, a CalPERS board member, said she thinks the policy encourages engagement but is not an outright ban on divestment.
Yee said CalPERS lacks the clout to make change on its own and does much engagement with other large investors. She said some work is not reported in documents that might reveal strategy.
“But understand, we are not letting up on this,” Yee told Miller. “We also see the risk, the huge risk that climate is going to place on this fund relative to the ability of companies to continue to create long-term value.”
Divestment makes a public statement, say critics, but it limits investment opportunity, decreases diversification, burdens staff, and may limit returns, increase risk, and result only in a turnover of shares with little or no effect on the target.
A policy of engagement, remaining a shareholder with a “seat at the table” to advocate change, is said to often be a less costly and more effective alternative to divestment and the sale of the stock.
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.
The Wilshire report did not include a bill by Senate Pro Tem Kevin de Leon, D-Los Angeles, signed by Gov. Brown two years ago, that requires divestment, if fiduciarily responsible, of thermal coal companies not transitioning to clean energy.
A report earlier this month complying with the law said CalPERS had sold most of its coal holdings, taking a loss as coal stock rebounded under the Trump administration, the Sacramento Bee reported.
CalPERS, with investments worth $330 billion last week, was said to have stock in 24 coal companies worth $83 million two years ago as the coal industry appeared to be winding down.
A bill requiring CalPERS and CalSTRS to consider climate risk in fund management and to make annual reports of climate risk in their investment portfolios (SB 560 by Sen. Ben Allen, D-Santa Monica) stalled in the Senate appropriations committee in May.
The global investors alliance was discussed during a CalPERS board session on corporate governance that included diversity on corporate boards, executive pay, holding seats on multiple boards, and other issues.
The only public comment came from Jason Perez, president of the Corona Police Officers Association, who said he thought much of the discussion, though laudable, was contrary to the state constitution that says a retirement board’s first duty is to the beneficiaries.
“Please, please, I beg you, just make us money,” Perez told the CalPERS board. “Don’t try to change the world, right. Just make us money. I’m going to retire in 10 years, Lord willing, and live a long and happy life.”