Updated with correction
CalPERS’ investment staff is taking no official position on state legislation calling on the pension fund to divest from coal companies. But in agenda materials prepared for the April 13 investment committee meeting, the staff also opposed in general selling off energy holdings, stating the country’s largest defined benefit plan will lose its power of persuasion to move companies toward cleaner energy.
“Engagement is the first call of action and is the most effective form of communicating concerns with the companies in which CalPERS invests,” the staff said in the agenda materials. “This 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.
The investment committee is being asked to approve the staff view at the meeting.
The move by the $300.5 billion California Public Employees’ Retirement System, Sacramento, comes as the $190.8 billion California State Teachers’ Retirement System, West Sacramento, directed investment staff on April 3 to study whether the pension fund should begin divestment.
However, despite the study, CalSTRS Chief Investment Officer Christopher J. Ailman said he is opposed to divestment of securities in general.
An influential California legislator, Senate President Pro Tem Kevin de Leon, introduced legislation in February requiring both systems to liquidate holdings in thermal coal companies by July 1, 2017, if officials cannot conclude the companies are transitioning their business to cleaner energy generation.
CalPERS spokesman Brad Pacheco in a statement to Pensions & Investments commended the senator’s leadership on climate change without mentioning CalPERS’ general opposition to divestment in energy stocks.
“The bill calls for us to engage with companies, which is consistent with our current approach to climate change,” he said.
While several endowments, including that of Stanford University have divested coal holdings, major public pension funds have said constructive dialogue with corporations is more effective.
The CalPERS investment committee on April 13 also will consider a staff recommendation to reduce the amount of money it holds in cash to 1% from 2%.
Investment staff said in agenda materials that CalPERS has made significant progress over the past year enhancing its ability to forecast cash requirements.
Investment staff is recommending that the reduction in cash be added to the pension fund’s current fixed-income allocation, increasing it to 20% from 19%.
The staff says increasing the pension fund’s largest asset class, global equity, by one percentage point to 52%, would offer “the highest expected return but also the highest risk.”