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ESG

CalSTRS to divest from private prison companies CoreCivic, GEO Group

CalSTRS' investment committee Wednesday approved the divestiture within six months of its investments in private prison operating companies CoreCivic and GEO Group.

The $229.2 billion California State Teachers' Retirement System, West Sacramento, began a study in July about whether to keep investments in private prisons due to the increased risk to CalSTRS' portfolio.

Christopher J. Ailman, CalSTRS' chief investment officer, said at the time that the increase in risk was with respect to violations of human rights by private prisons that are now being used to house immigrants and children of immigrants who have been separated from their parents. CalSTRS heightened engagement with CoreCivic and GEO Group regarding their business practices, which included "visits to various detention facilities and face to face meetings with senior management concerning operational processes and risk management efforts," a CalSTRS news release said. As of Nov. 6, CalSTRS' combined holdings in the two companies in its global equities and fixed-income portfolios was $12.1 million.

"The board conducted a review of the staff research. We agreed that the engagement efforts were thorough and listened to our expert investment consultants. Based on all the information and advice we were provided, the board decided to divest according to the policy criteria," said Harry M. Keiley, chairman of the investment committee, in the news release.

Mr. Ailman, in a memo to the investment committee, addressed members' concerns regarding General Dynamics Corp. and United Rentals: "Staff has engaged General Dynamics and determined they only provide case management services and training not physical detention, which is a de minimis portion of the company's revenue. United Rentals has been alleged to support the administration's detention polices by providing equipment for temporary detention facilities. Staff has been unable to confirm the company's involvement, and it would be a de minimis portion of the company's revenue."

The risk factors to which CalSTRS' staff referred in the pension fund's environmental, social and governance policy included "respect for human rights," Mr. Ailman wrote in the memo.

"While staff has been informed by both companies that they were not directly involved in the separation of the family, they did provide capacity for the detention of the parents," Mr. Ailman wrote. "The companies do not have control over which detainees are sent to their facility or nor do they have knowledge on arrival if the detainees have children that had been turned over to (the Department of Homeland Security). While neither Geo Group nor CoreCivic have facilities to house unaccompanied minors, both have a facility to house detained families."

"These two facilities operate outside San Antonio, Texas, (and) are designed to keep children with one of their parents," Mr. Ailman write. "As part of staff's research, staff and senior leadership toured both facilities. Staff confirmed that in both facilities detainees are open to roam the grounds, the living units were not locked, and there was no razor wire or weapons carried by staff (ICE and other law enforcement agents at the facility could carry their firearms on parts of the grounds). These detention facilities would not violate the CalSTRS respect for human rights; however staff has not nor is able to trace every family affected by these firms. While staff was not able to obtain evidence that these companies violate the respect for human rights, private prisons do add capacity, and help facilitate a system, that may be viewed as violating the risk factor." Other ESG policy risk factors affected included respect for civil liberties and respect for political rights.

In a statement emailed by a spokesman for GEO Group, the company said: "We believe this decision was based on a deliberate and politically motivated mischaracterization of our role as a long-standing service provider to the government. Our company has never played a role in policies related to the separation of families, and we have never provided any services for that purpose. We are disappointed that misguided, partisan politics were able to jeopardize the retirement security of California's educators."

Amanda S. Gilchrist, CoreCivic spokeswoman, said in an email: "With this disappointing and purely political decision, a group representing educators has voted against a company that passionately believes in educating those who need it most. Hundreds of CalSTRS members' fellow educators work in our correctional facilities every day to help prepare inmates for success after prison."