CalPERS pushes back against greenwashing allegations

CalPERS – the US’s largest public pension plan – has issued a statement defending its fossil fuel exposures in response to a report from a coalition of environmental activists that accused the pension giant of greenwashing.

California Common Good (CCG) attacks CalPERS’s “climate solutions portfolio”, which includes “billions of dollars invested in many of the world’s most climate-endangering companies, including the five worst US emitters of greenhouse gases, most of the world’s largest oil companies, and other major air polluters”. The group calls on the pension giant to “increase its sustainable investments and distance itself from volatile fossil fuel equities”.

CalPERS has roundly rejected the greenwashing implication, arguing that the activists have misrepresented the data and misunderstood the climate investment strategy.

Although green bonds – the proceeds of which go to climate solutions – represent “100% of the climate solution” that CalPERS attributed to carbon intensive companies such as Alcoa Corporation ($40.8m) and MidAmerican Energy Company ($116.9m), CCG “never asked why those investments in those companies were included, choosing instead to draw its own conclusions”, CEO Marcie Frost said. 

“CCG’s report aims most of its criticism at CalPERS’ inclusion of seven oil and gas companies on our climate list,” the exec continued. “Unfortunately, its authors left out the context provided by the documents they requested: technologies owned by these companies account for only $67m – less than two tenths of one percent – of the pension fund’s $50bn in baseline climate investments.”

Frost also said the problem wasn’t just a question of taking numbers out of context. CCG provides "erroneous numbers" about the amount in our climate calculation attributed to three state-owned oil and gas companies. Combined, they only account for $1.3m.

“These tiny percentages are hardly evidence of some diabolical attempt to rebrand oil and gas companies as climate champions.”

A more philosophical debate

Part of the squabble stems from a more fundamental disagreement about whether a climate solutions portfolio should include green investments made by fossil fuel companies. The International Capital Market Association, for example, denominates “strategic inconsistency” - a mismatch between an issuer’s use-of-proceeds project and its overall sustainability strategy – a form of greenwashing. 

Raising cheaper financing for green projects may allow the company to transfer more funding internally to the dirty projects. It could also help the company image wash, allowing them to trumpet the green benefits of certain niche projects, while pushing for business-as-usual in the background.

However, some investors argue that all companies, no matter how carbon intensive or misaligned with net zero, should be able to issue green bonds, as this may help the company take a crucial first step to thinking more seriously about transition.

“You don’t wait for the perfect before doing the good,” Sean Kidney, CEO of Climate Bonds Initiaitve, told Net Zero Investor. “The question is whether the good is sufficiently reasonable, managed and organised.”

CalPERS's approach seems closer to the latter way of thinking, arguing that “a green asset is a green asset, regardless of corporate ownership”. It also notes that the “inclusion of low-carbon initiatives from legacy energy companies" seems to be CCG’s primary objection to CalPERS’ climate strategy.

“The group’s standard seems to be all-or-nothing,” Frost wrote. “Either a company is 100% ‘green’ or it can’t be considered as contributing any kind of climate solution.”

She also argued that “transition strategies are especially important”, as improvements in the high-emitting sectors "won’t succeed" without badly needed capital from investors like CalPERS. Investing in these types of companies will raise CalPERS portfolio’s total emissions in the short term but will provide financial and environmental benefits down the road.

In other words, the fund advocates for a real-world rather than a paper decarbonisation strategy, and this requires hanging on to dirty companies for longer with the declared aim of helping them to improve.

CCG’s standard, on the other hand, would require “a sweeping energy divestment” – a “symbolic act” that “ignores” the value of climate transformations and investor engagement.

“We believe divestment isn’t prudent, or achieves what it sets out to accomplish,” Frost said, citing research from the universities of Southern California and Utah that concluded that divestment would lead to higher emissions as new investors would be less likely to focus on the long-term value of decarbonisation.

“Even in the face of significant differences, we agree with California Common Good … that climate change is a systemic financial risk … [and] the importance of credible transition plans,” she concluded.