CalPERS’ CEO pushes back on fossil fuel divestment calls
Marcie Frost highlights that CalPERS would be abandoning its fiduciary duty if it were to dispose of its fossil fuel holdings
The CEO of $462bn Californian pension fund CalPERS has hit back at calls for it to divest from the fossil fuel industry as to do so would “ignore” its fiduciary duty and be “counterproductive” to tackling climate change.
In an article last month, the Los Angeles Times reported that the pension fund’s approach to reducing its carbon footprint is “far too timid, incremental and ill-defined”, stating that its Sustainable Investing 2030 Strategy is “divorced from morality”.
The article called on CalPERS to address the impact of climate change by introducing a “real divestment mandate” regarding its fossil fuel holdings and prioritising renewable energy. Currently, CalPERS holds investments with multinational oil giants such as ExxonMobil and Chevron as well as government-owned companies in China and Saudi Arabia.
However, in response to the article Marcie Frost, CalPERS’ CEO, highlighted that the Los Angeles Times completely overlooked CalPERS’ net zero plan and fiduciary duty.
RENEWABLE INFRASTRUCTURE SUMMIT
12/03/24, London Stock Exchange | Asset owner knowledge sharing & due diligence
CalPERS’ Sustainable Investing 2030 Strategy promises to more than double investment in low-carbon assets and other climate solutions to $100bn by 2030, while reducing the carbon emissions intensity of CalPERS holdings by 50%.
“Fighting climate change and paying for pensions are not mutually exclusive imperatives,” Frost explained.
“The newspaper is willing to wager our members’ retirement security on a bill in the California Legislature to force divestment of fossil fuel holdings by 2031, regardless of those companies’ progress in turning toward renewable energy.
“In essence, we are being asked to ignore our fiduciary duty and, even then, to embrace a future mandate that is built upon unverified scientific standards.
“We can’t wait. That’s why CalPERS is taking action now, adopting a strategy that goes faster and farther toward reducing greenhouse gases than divestment.”
Fighting climate change and paying for pensions are not mutually exclusive imperatives.
‘Divestment would be counterproductive’
Frost highlighted that currently CalPERS has committed $47bn of its portfolio to climate solutions, which is “far outpacing what would happen under divestment”.
In her response, CalPERS’ CEO referenced a recent report by the University of Southern California and the University of Utah that revealed that companies reduced their greenhouse gas emissions when stock ownership by green funds increased. The study revealed that this was because corporate managers responded to the environmental preferences of their investors.
In addition, the report highlighted that divestment could be “counterproductive and lead to greater emissions”, as the investors replacing pension funds such as CalPERS would “be unlikely to speak up as loudly or consistently about the urgent need to move toward a low-carbon economy”.
“Our approach to sustainable investing is rooted in what works.
“We urge those who demand action to support our effort to decarbonise our portfolio and, in doing so, help decarbonise the global economy,” Frost added.
Last year, CalPERS has been facing pressures from lawmakers to divest all its fossil fuel assets. The Senate Bill 252 would require California's two largest retirement systems to sell more than $14 billion in fossil fuel assets, it would also prevent them from making new investments in fossil fuel assets. While it has been shelved last summer, it could pass into law later this year. The bill has been publicly opposed by both CalPERS and CalSTRS.
