CalPERS’ investment staff said Wednesday the big pension fund should hold onto its coal investments, despite proposed legislation by the leader of the state Senate that would pressure CalPERS and CalSTRS to unload their holdings.
In a report to its investment committee, the CalPERS staff said dumping coal-related stocks would diminish the pension fund’s abililty to influence how energy companies do business.
“When it comes to climate change and its risks, CalPERS’ view is that the path to change lies in engaging energy companies, instead of divesting them,” said the report, co-authored by legislative affairs chief Danny Brown and chief operating investment officer Wylie Tollette. “If we sell our shares then we lose our ability as shareowners to influence companies to act responsibly.”
The report came in response to SB 185, by Senate President Pro Tem Kevin de León, D-Los Angeles. He first floated the idea in December. The staff report commended the senator “for his leadership in tackling climate issues.”
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His bill wouldn’t outright force CalSTRS and CalPERS to sell their coal-related investments. It would require them to talk to the companies first, and then sell their shares if the pension funds aren’t convinced the companies are transitioning to a “clean energy” strategy.
However, the bill also says the pension funds could hold onto their shares if selling them would violate their financial responsibilities to make money.
The staff recommends that the CalPERS board take no official position on the de León bill. CalPERS’ investment committee will take up the legislation next Monday.
The CalSTRS governing board voted last week to take no position on the legislation.
De León said in a prepared statement: “Certainly, we can find more sustainable and profitable investments for our public pension funds that better suit our values. We recognize what analysts are saying— coal has become a bad investment. I’m working with CalPERS and CalSTRS to ensure a smooth divestiture of our holdings in coal.”
CalPERS’ coal investments total an estimated $100 million to $200 million, said pension fund spokesman Brad Pacheco. CalSTRS’ coal holdings come to $40 million, said spokesman Michael Sicilia.
De Leon’s coal proposal is the latest example of public pension funds juggling their financial obligations with ideas of socially responsible investing. Both pension funds have been advocates for making environmentally conscious investments.
The investment issue came into focus last week when the California Federation of Teachers demanded that CalSTRS immediately sell its investment in Cerberus Capital Management, a private equity firm that owns Freedom Group. A firearm made by Freedom Group was used in the 2012 massacre at Sandy Hook Elementary School in Connecticut, in which 26 students and teachers were killed.
CalSTRS said it wants to sell its Cerberus holdings but can’t do so right away because of legal constraints and its fiduciary obligations.
Call The Bee’s Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.