A Tale of Two Pipelines: Dakota Access, Line 3, and our Pension Funds

In 2016, Tara Houska (Honor the Earth, Giniw Collective) was part of the indigenous-led resistance against the Dakota Access Pipeline. During the cold November of that struggle there was a surge of national and global outrage at the viciousness of the company-financed and government-sanctioned response to the protests, including shooting peaceful protesters with water cannons during freezing weather (as seen in photo).  

In 2021, Tara Houska is still fighting pipelines, as they lead the protests against Enbridge’s massive LIne 3 tar sands pipeline expansion. If President Biden permits this assault on Anishinaabe tribal rights, on treaty lands and on the fragile headwaters of the Mississippi to continue on his watch, it will cast a shadow of doubt on the sincerity of all his climate promises.

Just as building bigger freeways leads to more cars on the road, building bigger pipelines expands petroleum markets and perpetuates the public health, environmental, and social harms caused by fossil fuels. In order to move forward on climate and justice, we must stop the flow of money to fossil fuels.  

Our CalSTRS and CalPERS pension funds were invested in the Dakota Access Pipeline, and they are invested in Line 3.  The funds could use their financial leverage – not just the lip service of shareholder engagements – to send a message that perpetuating dependence on fossil fuels with pipeline projects is not morally, ethically, or financially justified.  But these pension funds have only rarely excluded fossil fuel investments, and then only in response to legislation.

Take action and send a letter to CalSTRS

Holding the Pension Funds Accountable

A short time after he was elected to California State Assembly, San Jose City Councilmember Ash Kalra drafted the remarkable 2017 bill AB 20 in response to the unprecedented protests by the Standing Rock Sioux against the Dakota Access Pipeline. The bill cited the harms caused to the peaceful protesters and the violations of indigenous rights, and asked that PERS and STRS engage with the project companies and with the banks in order to get the pipeline route moved away from the lands and waters it threatened.

AB 20 required PERS and STRS to make a report by April 1, 2018 “to the Legislature and the Governor regarding investments in the Dakota Access Pipeline, as defined …[and] review and consider factors related to tribal sovereignty and indigenous tribal rights as part of the boards’ investment policies related to environmental, social, and governance issues. The bill would provide that it does not require a board to take any action unless the board determines in good faith that the action is consistent with the board’s fiduciary responsibilities established in the constitution”

The bill was signed into law on October 8, 2017, and both CalSTRS and CalPERS submitted engagement reports by the required deadline of April 1, 2018.

Thanks to the diligent analysis of researchers at Rainforest Action Network, Food and Water Watch, and other big green groups, coupled with the passionate activism of the Water Protectors and allies, the protests at Standing Rock laid bare the connections among money, fossil fuels, and environmental racism in a dramatically new way.  This work was successful in shining light on the damaging work done by these companies and the banks that support them. 

Large shareowners such as public pension funds rely on being able to avoid bad publicity around their investments.  Even with the spur of AB 20 and the intense scrutiny around DAPL, CalPERS and CalSTRS managed to hold themselves above the fray with their very earnest engagements. However, there is no evidence to show that they, or other investors, changed their investments as a result of these engagements. The route of the Dakota Access pipeline was not changed, and oil began to flow through that pipeline on May 14, 2017.  Recently, President Biden declined to shut down DAPL pending a new environmental review. Ultimately, despite all of the outrage and sacrifices, it may be business as usual for fossil fuels. 

What Did the DAPL Engagements Do?

Both pension funds engaged with the primary DAPL project companies – Energy Transfer Partners and Sunoco Logistics (since merged); and with minority stakeholders such as Marathon Petroleum, Enbridge, and Phillips 66.

The Funds also engaged with the major banks financing DAPL. CalSTRS engaged, additionally, with 18 more banks that had at some time provided general purpose financing to the companies involved with the construction of DAPL. CalSTRS staff engaged with these banks to confirm that they were not currently involved in the financing of DAPL.

Finally, CalPERS and CalSTRS also sent a letter to the governing body of banks that have signed up to the Equator Principles (14 of the 17 DAPL banks had signed the Equator Principles) asking that the banks “address or support the Standing Rock Sioux Tribe’s request for a reroute of the Dakota Access Pipeline (DAPL) that avoids their treaty territory.” 

The  pipeline route was not changed as a result of this engagement, but the adverse publicity and engagements by other investors caused three banks – BNP Paribas, DNB, and ING – to sell their DAPL prpject loans to other investors.

Lawsuits Defeated

The project company consortium, Dakota Access LLC, filed a federal SLAPP (Strategic Lawsuit Against Public Participation) suit in August 2017 against several tribal members. That suit was dismissed. 

Energy Transfer Partners (ETP) also brought a SLAPP suit against Greenpeace International, Earth First!, and other groups, alleging that their actions increased the cost of constructing DAPL by at least $300 million and damaged ETP’s “relationships with the capital markets . . . impairing access to financing and increasing [ETP’s] cost of capital and ability to fund future projects at economical rates.”  The $900 million lawsuit was dismissed in 2019, but it served its purpose in showing that activism and reputational risk did affect the financing of the pipeline.

CalPERS’ engagement strategy was hampered by the fact that the project companies were part of a “master limited partnership” that was not constrained by the preferences of shareholders. As CalPERS complained, “these MLP structures do not provide investors with voting rights and are not required to have a standard annual general meeting with the opportunity for shareowners to vote on the Board of Directors or auditors, or put shareowner proposals forward.”

Without the ability to leverage shareowner status with the project companies, CalPERS focused on engaging the banks providing the financing for DAPL. Various approaches were used including meetings, asking for a signature on the letter to the Equator Principles Association, and (at Wells Fargo), a shareholder proposal (that garnered 32% support).

CalSTRS did not seem to be constrained in “engaging” with the project companies and the banks, but their engagements were just as ineffective.

To its credit, CalSTRS added a new “risk factor” called “Respect for Indigenous People’s Rights“, affirming that there’s a risk to an investment’s long-term profitability if respect is not given to the rights of indigenous people. The risk factor reads:

Respect for Indigenous People’s Rights. The investment’s long-term profitability from operations, activities and business practices that do not adequately respect the cultural value and ethnic identities or that dispossess or materially degrades lands, territories or resources.

CalSTRS further asserted: “As noted in this report, CalSTRS will continue to invest its funds in a responsible and prudent manner and adhere to the board’s ESG Policy. CalSTRS will continue to address the concerns and risks around the environment and indigenous rights raised by the DAPL situation through complete engagement with all companies identified in which CalSTRS has holdings, including those that provided general purpose financing to the companies involved with the construction of DAPL. CalSTRS will also revise the ESG Policy to specifically include treatment of indigenous people and work with banks and other investors to improve the environmental and indigenous people’s rights requirements in the Equator Principles.”

The best result of this AB 20 legislation was getting a clear summary of the engagement process and showing its lack of results, while bringing awareness of CalPERS and CalSTRS financial involvement in DAPL. Without this legislation, spurred on by the public outcry and huge media attention to the vicious treatment of the indigenous Water Protectors at Standing Rock, the pipeline would have been built with PERS and STRS willing participation and no one would have been the wiser.

PERS and STRS Investments in DAPL

Both funds invested in Enbridge and in Energy Transfer Partners (and in Sunoco Logistics, which merged with Energy Transfer during the DAPL project). The funds also invested in most of the banks funding DAPL.

Although a complete interpretation of the investment data is not possible without further research, here are the findings for investments in Energy Transfer Partners:

Investments in Energy Transfer Partners

Energy TransferStocks 2019Stocks 2020Bonds 2019Bonds 2020
CalPERS$28.4 million$39.9 million$198 million$251 million
CalSTRS00  $30 million  $42 million

Note that the data on CalSTRS shows no equity investments in Energy Transfer Partners, and only a very small position in bonds.

Investments in Selected Banks Financing DAPL

As of 6/30/2020

In addition to direct investments in the project companies, both funds have sizable investments in the banks that finance the project companies, such as TD Bank, Citigroup, and Wells Fargo.

TD BankCitigroupWells Fargo

CalPERS

$217,448,524

$246,878,101

$248,116,813
CalSTRS$135,832,000$213,580,000$225,130,000

Line 3: Pension Funds Invest in Another Pipeline

CalPERS and CalSTRS continued to invest in the Dakota Access Pipeline, in spite of their shareholder engagements and being forced to report to the Legislature.  Today, the pension funds are still investing in pipelines, including the massive Line 3 project that violates treaty lands and indigenous rights just as DAPL did, not to mention putting the environment at risk from the inevitable spills. 

Enbridge Energy Partners (a minor player in the funding of the DAPL) is the major project company for the LIne 3 pipeline.  PERS’ and STRS’ current investments in Enbridge show both the futility of engagement and the fact that the Funds themselves have chosen not to exclude investments in pipeline projects, no matter how destructive.  

EnbridgeStocks 2019Bonds 20192019 TotalStocks 2020Bonds 20202020 Total
CalPERS$113 million$22.7 million$135.7 million$147 million$13 million$160 million
CalSTRS$117.4 million$5.2 million$122.6 million$102 million$5.4 million$107.4 million

After cashing in nearly $85 million in zero-coupon bonds (which pay no interest and pay only the par value at maturity) in July of 2019, CalPERS purchased $22.7 million in new long-term bonds maturing in 2025, 2027, 2040, and 2044.  In 2020, CalPERS pared down its Enbridge bond position to one $13 million bond maturing in 2027.

Along with these bonds, CalPERS held $113 million in Enbridge international equities in 2019; this position grew to $147 million in 2020, despite the plunge into negative territory during the first months of the pandemic.  The data suggest that CalPERS increased its position in Enbridge from 2019-2020.

CalSTRS also invests heavily in Enbridge stocks, holding $117.4 million in Enbridge, Inc in 2019 and $102 million in 2020.

For bonds, CalSTRS holds 3 Enbridge bond issues worth about $5.3 million, that mature in 2022, 2027, and 2077 (!) – no change 2019-2020.

The Funds Need to Rethink Engagement

The facts on the ground – that pipeline construction continues and capital continues to flow to fossil fuel projects in spite of legal, moral, ethical, and financial risks – show the meaninglessness of shareholder engagements, empty pledges, and pious statements by the funds.  The facts on the ground show that the fossil fuel industry is firmly in control of our pension funds’ investments. By maintaining this “business as usual,” the funds are unable to address injustice, and they won’t be able to meet their financial or climate goals.

New York State Comptroller Tom DiNapoli, after years of activism and the near-passage of a state divestment bill, finally got fed up with being pushed around by fossil fuel companies and pledged to divest from companies whose plans fail to align with a 1.5 degree scenario. Now, engagements in New York State have a timeline, metrics, and consequences. As proof, Di Napoli recently divested from 7 oil sands companies.

CalPERS and CalSTRS: it’s time to wake up and add divestment consequences to your engagement strategies. Your members and beneficiaries deserve an active management strategy that works for justice and a livable future.

Photo credit: Avery White for YR Media