CalPERS reportedly approved a recommendation at its meeting last week to oppose California Senate Bill 1173, which would prohibit it and CalSTRS from investing in fossil fuel companies and require them to divest from existing investments by July 1, 2027.
Among the risks CalPERS noted in complying with the bill are:
- Compromises CalPERS’ investment strategies by eliminating alternatives from the investment opportunity set and reducing diversification, which may have a detrimental effect on investment returns over the long term
- Imposes financial risks on CalPERS’ members and employers.
- Increases risk to the system.
- Reduces alignment of current Investment Office practices with CalPERS’ Investment Beliefs and Investment Policies.
- Increases future likelihood of external parties directing portfolio activities.
CalPERS further identified no benefits associated with the bill: “The divestment mandates do not appear likely to alter the activities of any coal, oil, or gas company, and do not appear likely to have effect on climate change.”
As previously reported, CalSTRS announced its opposition to the bill last month. Both CalPERS’ and CalSTRS’ positions appear consistent with FCLTGlobal’s recent guidance to institutional investors on managing carbon-intensive assets, which favors engagement over divestment, as we reported on here.
See “Divestment is a 'blunt instrument', says UK ESG cross-party parliamentary group” and “ESG resolution round-up: Big US pension funds split on Credit Suisse climate proposal” (Responsible Investor).
This post first appeared in the weekly Society Alert!