November 16, 2016

CalSTRS Fall Meeting Faces Divestment Push Despite Opposition

The California State Teachers’ Retirement System (CalSTRS), one of the nation’s largest pension funds, is holding its fall board meeting today in Sacramento.  Based on statements from Fossil Free, this meeting will again include outside groups pushing the fund to divest.

The system’s $190+ billion portfolio has been a favorite target of divestment activists as well as politicians pushing the state pension funds to give up their fossil fuel holdings. Just last year, the state of California forced CalSTRS as well as the California Public Employees Retirement System (CalPERS) to sell off direct coal holdings when Gov. Jerry Brown signed SB 185 into law.  Yet as DivestmentFacts.com covered previously, the bill only forced the funds to divest if the move is amenable to the financial managers’ fiduciary duty.  In addition, the legislation is only applicable to “thermal” coal companies generating 50 percent or more of their revenue from mining coal, leaving a vast majority of companies outside its influence.

Despite a push from state politicians and activists, the pension managers themselves have resisted divestment on financial and environmental grounds.  Here is a sampling of what officials have said in the past:

CalSTRS Chief Investment Officer Chris Ailman: “I’ve been involved in five divestments for our fund. All five of them we’ve lost money, and all five of them have not brought about social change.” 4/7/15

CalPERS Chief Executive Officer Anne Stausboll: “Engagement is the first call of action and is the most effective form of communicating concerns with the companies in which we invest. That is why, 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. If we sell our shares then we lose our ability as shareowners to influence companies to act responsibly.”  3/22/15

CalSTRS Chief Executive Officer Jack Ehne: “Divestment bears the risk of adversely affecting an investment portfolio and severs any chance to advance positive change through shareholder advocacy.” 8/21/13

Yet today, CalSTRS is again under fire to further divest its portfolio.  Ahead of today’s board meeting, Fossil Free California is “launching a renewed campaign urging CalSTRS to divest completely from all fossil fuel companies by 2020, beginning with ExxonMobil, Chevron, and Shell,” as well as promoting a petition in favor of divestment.  This new call comes despite the fact that Fossil Free California lauded CalSTRS’ efforts to increase sustainable holdings.  Yet Fossil Free California has dismissed CalSTRS’ “good-faith” efforts to engage with companies on issues of climate risk and mitigation, noting that the shift in investment policy “is not large enough or fast enough to counter the urgent dangers of the climate crisis. CalSTRS must do more, for the sake of the environment — and for the sake of teachers’ pensions.”

Many others in California, however, have found divestment to be an empty gesture with little impact on the environment. Here’s what UCLA Prof. Welch had to say after Stanford decided to divest from coal:

“Global public equity markets constitute about $60 trillion of market capitalization. With about $19 billion, Stanford’s endowment represents only about five-hundredths of 1 percent of the world’s capitalization. Even if Stanford divested itself fully of all its stocks, both fossil and non-fossil, it would probably take the market less than an hour to absorb the shares. It would not lead the executives of the affected companies to engage in soul-searching, much less in changes in operations.”

Frank Wolak of Stanford also agreed that divestment is an empty gesture that does not accomplish anything significant:

“Divestment comes at the expense of meaningful action. It will do nothing to reduce global greenhouse emissions. It will not prevent these companies from raising capital.”

Richard Muller, a leading climate scientist and a physics professor at the University of California, Berkeley, also stands against the idea of full divestment:

“Just reducing fossil fuels in the United States doesn’t really help global warming…You have to address a much bigger problem. This little mantra of ‘fossil fuel bad, renewable good’ is not going to be effective in reducing global warming.”

Prof. Bradford Cornell, a visiting professor of financial economics at Caltech, also found that divestment risks the loss of millions of dollars every year, providing no financial gain for universities. After looking at the impacts of divestment on five distinguished universities with sizable endowments – including Harvard, Yale, MIT, Columbia, and NYU —  he found such a decision would lead to an average combined annual shortfall of $195 million. Is that the type of cost CalSTRS pensioners can afford?

This isn’t the first time Fossil Free is pushing an organization to divest despite the action having no tangible impact on the environment.  While CalSTRS may once again have to fight against these efforts, it can be certain that experts in the state all agree with its own position: divestment is a lot of talk with little impact on the environment, and a high price tag for pensioners.