Pension funds facing demands to divest holdings in response to specific issues could take a more strategic approach by developing a divestment policy statement in the same way their standard of practice calls for adopting an investment policy statement, according to a fund official and consultant.
The New York City Employees' Retirement System is exploring development of a comprehensive policy on divestment for its $42 billion fund, at the request of Scott M. Stringer, president of the borough of Manhattan and a NYCERS trustee.
“We are seeing some funds interested in a strategic approach to responsible investment,” said Craig Metrick, principal and U.S. head responsible investment, Mercer LLC, New York. “I'm not going to call it a divestment policy, but it seems like these types of investors are being asked more and more about sustainability, environment and social issues,” Mr. Metrick said.
“I think that's a good idea long term ... toward having some response. ... It may not result in action, but (a policy would serve to) having some response to these requests for divestment or investment.”
“Divestment can be a slippery slope,” Mr. Metrick said.
In a Feb. 1 letter to other NYCERS trustees about a divestment policy, Mr. Stringer said: “Establishing such a policy would help ensure we employ a consistent and rigorous approach to all divestment decisions and that, subject to fiduciary responsibility, such decisions are based solely on financial and economic considerations.
“NYCERS and many other large public pension funds in the U.S. have been requested to consider several divestment campaigns in recent years and will certainly encounter more in the years to come,” Mr. Stringer wrote.
The NYCERS board directed Callan Associates Inc., its general consultant, to research existing policies and best practices related to divestment at other pension funds. The board expects Callan to report back as early as the Feb. 26 meeting of its investment committee, which is composed of all trustees. No timeframe has been established for a vote to draft a comprehensive policy.
The December Newtown, Conn., school shooting was the catalyst for Mr. Stringer's recommendation to the board to consider adopting a divestment policy.
The California Public Employees' Retirement System, Sacramento, adopted a divestment policy statement in February 2009. It sets a policy for its $253.2 billion in assets for “responding to external or internal initiatives to cause CalPERS to sell investments or refrain from making additional investments (divesting) for the purpose of achieving certain goals that do not appear to be primarily investment-related, such as promoting social justice (divestment initiatives).”
The CalPERS policy goes on to state it “generally prohibits divesting in response to divestment initiatives but permits CalPERS to use constructive engagement, where consistent with fiduciary duties, to help divestment initiatives achieve their goals.”