CalSTRS recently published its annual Sustainability Report, and it shows that the world’s largest teachers’ pension fund is increasingly aware of the significance of divestment. While the report continues to emphasize the current CalSTRS policy of shareholder engagement, the divestment movement receives a full and fair treatment. This page features our work at Fossil Free California.
One section of the report, “Carbon-Based Investment Risk Management,” describes the 21 environmental, social, and governmental (ESG) risk factors CalSTRS takes into account when selecting investments. One factor is environmental risk, defined as:
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 is taking steps to reduce its impact, exacerbating the problem, or oblivious to the risk.
The report goes on to describe the enactment last year of SB 185, the FFCA-supported law that mandates divestment of thermal coal investments by both CalSTRS and CalPERS. When the legislation was proposed in April 2015, the CalSTRS board initiated an “engagement and due diligence process to evaluate the risk presented.” The process was completed in a matter of months, and divestment was approved in February 2016.
We applaud the rapidity of this engagement process. CalSTRS apparently concluded that thermal coal companies are unable to overcome the environmental risks implicit in their carbon-intensive business model, and that divestment was the only reasonable outcome.
In this context, CalSTRS states:
However, when considering divestment, we believe that, where appropriate, active engagement is the best method to resolve issues. Divestment is the most serious step we, as an investor, can take, as it severs ties with the company and, therefore, severs our influence with the company as well.
With these coal companies, “active engagement” meant a thorough but rapid evaluation of the environmental risk, a process of less than a year, with the threat of divestment ready at hand. We trust that CalSTRS will apply the same sense of urgency to any further engagement with fossil fuel companies, and that it will impose a deadline for environmental compliance after which divestment would occur.
It seems likely that similar “active engagement” with oil and gas companies can only result in a similar conclusion, that the essential business model of carbon-extractive corporations is incompatible with the inherent financial risk — to say nothing of the humanitarian risk. Severing influence with ExxonMobil and Chevron would indeed be a serious step, but it is appropriate, and it would be a boon for CalSTRS and for the teachers it represents.
You can read the rest of the Sustainability Report here.