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May 10, 2019

Pension Investment Experts in New York, California Reiterate Objection to Divestment

In the past week, investment experts at two of the nation’s largest state pension funds have stated that worldwide divestment campaigns are misguided, financially irresponsible, and ironically, would cause more harm to the environment.

These statements aren’t coming from the energy industry or even the business community, but from officials who are responsible for delivering benefits to millions of pensioners in two of the most populous states—New York and California—showing that activists have it wrong when it comes to this unworkable and ineffective strategy.

This week during a board meeting of the California State Teachers Retirement System (CalSTRS), Kirtsy Jenkinson, CalSTRS’s director of corporate governance, said the right strategy is not divestment, but rather working with investors and energy companies to pioneer better technology to reduce emissions.

“I think the way that CalSTRS can continue to have the most impact in reducing global carbon emissions is collaborate with other global investors. And we’re involved in initiative called the Climate Action 100 Plus to spur over 100 of the world’s largest corporate greenhouse gas emitters to align their business strategies with the goal of the Paris agreement. And I firmly believe it is this collective action which is happening at a scale that we’ve never witnessed before amongst global investors, will actually be more effective in reducing emissions and will more impact than divesting our shares of the world’s largest fossil fuel companies.”

Jenkinson also said that divestment would do more harm to both pension beneficiaries and the environment because it would push the fund toward short-term investors who don’t prioritize the planet.

“In my mind, divestment pushes the problem elsewhere, often to short-term-focused investors who frankly and very disappointedly, care a lot less about the environment. I think the role we must play, both as a fiduciary and as a market participant, and not least, have the opportunity to play through the Climate Action 100 is that we can work with 320 of our closest friends in the global investment community, representing $33 trillion in assets under management. So again, it’s this unprecedented global collaboration that’s already demonstrating the power of investor engagement.”

These comments follow another stinging rebuke made by the New York State Comptroller’s office last week standing against a state divestment bill that would mandate the New York State Common Retirement Fund sell off its investments in fossil fuels.

Anastasia Titarchuk, the fund’s Interim Chief Investment Office (CIO), called divestment unconstitutional, costly, and in violation of the Comptroller’s fiduciary duty.

“All attempts by the legislature to mandate specific investment decisions have been struck down for violating the Comptroller’s independent discretion. Because this legislation, in requiring divestment from 200 specific companies, mandates very specific investment decisions, it would be vulnerable to legal challenges and likely found unconstitutional.”

And like CalSTRS’s Jenkinson, Titarchuk also stated that divestment would help address climate change.

“(…) Divestment is certainly not universally accepted as an effective means of mitigating climate change in the academic literature or among investment professionals… Divestment from fossil fuels is a blunt instrument that does not actually address the greatest risks for the Fund.”

There is now a growing consensus from both professionals across the political and business landscape that divestment is an unworkable strategy that would only hurt retirees while causing more harm to the environment.