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ESG

San Francisco divests 5 fossil-fuel holdings

San Francisco City and County Employees' Retirement System's board voted to divest its position in five companies as part of a six-point plan to reduce its exposure to fossil-fuel holdings, according to a board meeting video posted on the city's website.

The $25.6 billion pension fund will divest its holdings in Apache Corp., Gulfport Energy Corp., Hess Corp., QEP Resources Inc. and WPX Energy Inc. As of June 30, SFERS had a total of $8.6 million divestible assets out of its $10.2 million in net exposure to those companies.

The divestment comes as part of the sixth of the six-point plan the board approved in January, which called for the board to "define an approach to identifying the highest risk fossil-fuel assets; establish procedures for a 'watch list" of high-risk fossil-fuel assets; establish goals and timelines for any engagements with fossil-fuel companies under Level II engagement; outline options for a targeted, phased divestment process of high-risk assets; identify options for replacing any divested assets with lower risk, cleaner assets."

The pension fund had about $424 million in its public markets portfolio invested with fossil-fuel companies, most of which is in separately managed accounts.

The five companies from which SFERS' board voted to divest had "high risk of potential stranded capex, bankruptcy risk, and high-risk use of operating cash flows," Oct. 10 board meeting materials said.

The board also approved recommendations to engage with 24 companies on its fossil-fuel-related watch list and develop a company-specific engagement plan that is "results-oriented and "setting reasonable timeframes for companies to take action on reducing their climate transition risk," according to meeting materials.

Firms on the watch list include Exxon Mobil Corp., Occidental Petroleum, Petrobras SA, Anadarko Petroleum and ConocoPhillips, as well as Chevron Corp. and Marathon Oil Corp.

The board also approved a recommendation to engage with the four companies in which it invests that have some thermal coal activities to seek to understand whether those companies plan to reduce or eliminate their coal assets. Those companies are Anglo American PLC, China Shenhua Energy Co. Ltd., Cimic Group Ltd., and South32 Ltd. SFERS has a total of $12 million invested in the four companies.

Before finalizing the vote approving the recommendations, Brian Stansbury, president of the board, said he intends to push through a rule tracking all divestment actions or restrictions, on how much it is making or costing the system.

"Had we done this a year ago, Hess Corp is up over 50% on a one-year basis and that's among the five that we're going to divest. They're up over 50%. WPAX Energy, up over 73% on a one-year basis," Mr. Stansbury said. "So these stocks that we're going to be getting rid of, had we done it a year ago we would've lost millions of dollars on. And so that's the reality that this board needs to be aware of. Someone's going to have to make up that shortfall somewhere. Please be sure we are tracking this from the date that anything passes."

Darlene Armanino, executive assistant, referred questions to the board meeting video; Andrew Collins, director of ESG investing, did not respond to requests for further information.