Asset owners such as CalSTRS say they are loath to resort to divestment as they increasingly act on incorporating sustainability and ESG factors into their investing.
The threat of divestment, of course, can be a potent instrument for asset owners to wield when seeking to persuade companies on matters of environmental, social and governance concerns, advocates say. However, once asset owners divest, companies no longer need to pay attention to their concerns. What's more, divestment could negatively impact returns.
So far, CalSTRS' divestments have been small, noted Christopher J. Ailman, CIO of the California State Teachers' Retirement System, West Sacramento, during a Sept. 5 investment committee meeting. CalSTRS itself has opted to divest from tobacco, manufacturers of firearms and high-capacity magazines, and private prisons. Other divestments were required by state laws.
Still, those divestments can and do add up, he said.
"Those are straws and we're at the point of breaking the camel's back," Mr. Ailman said.
The competing demands stemming from the $241.3 billion pension plan's sustainable investment and stewardship goals, its overall investment goals and pressure from beneficiaries and the public were in full view during the investment committee meeting.
Kirsty Jenkinson, director of sustainable investment and stewardship strategies, who joined CalSTRS in January, said the pension fund aims to be a catalyst, because of its size, for financial markets to appropriately value and integrate sustainability and ESG considerations, including its focus on the transition to a low-carbon economy. In an increasingly crowded and resource-constrained world, ESG and sustainability factors are going to influence the pension fund's long-term return, she said.
At the meeting, the committee approved mostly cosmetic revisions to its corporate governance program and policy. The revisions did not impact the scope of CalSTRS' enhanced engagement activities consisting of formal or informal expressions of concern to company management, shareholder proposals and participation in litigation.