On Friday, June 12, the Investment Committee of the California State Teachers’ Retirement System (CalSTRS) meets in West Sacramento. Divestment activists will rally at CalSTRS headquarters to urge that the committee begin the process of divestment from fossil fuels. It’s about time.
Over the years, CalSTRS has established an enviable record of concern for the environment. The fund’s latest iteration of its “Investment Policy for Mitigating Environmental, Social, and Governance Risks” lays out, among other risks, the environmental factors to be considered when investing in a company:
Environmental: The investment’s long-term profitability from activities and exposure to environmental matters such as; depleting or reducing air quality, water quality, land protection and usage, without regard for remediation. Consideration should be given to how a company is dealing with the impact of climate change, including whether the government [of the company] is taking steps to reduce its impact, exacerbating the problem, or oblivious to the risk. [emphasis added]
Clearly, CalSTRS takes these risk factors seriously. It has recently released, for example, a comprehensive “Sustainability Report: The Next 100 Years.” The long-term perspective of this report makes clear that CalSTRS is aware of the enormous changes—including climatic changes—that are likely to affect every aspect of our lives, including health, security, and financial stability.
And last month the board “directed its staff and consultants… to evaluate the risk of investments in thermal coal companies, jumping ahead of pending legislation that would require CalSTRS and CalPERS to divest thermal coal holdings.” The reference, of course, is to SB 185, Senator Kevin de León’s pending bill to mandate coal divestment by the pension funds. Calpensions blogger Ed Mendel goes on to report: “The early move by the California State Teachers Retirement System, which could make it a pension fund leader on the issue, is the first step in a divestment policy that begins with meetings with thermal coal companies and experts in several fields.”
Quite rightly, too, CalSTRS insists on the importance of fiduciary responsibility. Without careful management of its portfolio, the fund would be unable to continue paying full pensions to its members even in the short term, much less over the next 100 years. CEO Jack Ehnes epitomized this caution when he wrote yesterday on his blog:
In the next five to 15 years, we expect that diversified investors will see a decrease in their exposure to fossil fuels along with an increase in exposure to alternative energy sources, but the rate at which this change will occur proves difficult to predict.
As we undertake this journey, we anticipate encountering a diversity of views. While consensus on issues such as engagement versus divestment may not be immediately solidified, it is clear that right now our economy is tilted toward carbon assets, or fossil fuels. For any investor of our size, those carbon assets are a substantial component in our portfolio of investments. What does that mean for an investment in a portfolio like ours? That is the question we’ll be exploring.
We will rally in West Sacramento on June 12 to join in that exploration and to present a strongly contrasting view. We cannot wait five to 15 years. The risk is immediate and enormous, and engagement is futile. CalSTRS’s usual cautious approach to the nexus of climate change, fiduciary responsibility, and shareholder engagement is no longer effective.
It is safer for the CalSTRS portfolio, it is safer for CalSTRS members, and it is safer for the Earth, to divest from fossil fuel companies that are recalcitrant and unwilling to change their ways, that—to quote the fund’s investment policy—are “exacerbating the problem” and “oblivious to the risk.” We urge, for the sake of our teachers and for the sake of our children, divest now. Sign up here and join us!