Report says CalPERS investments too focused on environmental and social activism

Dec. 11--A pro-business group released a report last week, saying the California Public Employees Retirement System (CalPERS) is too concerned about going green than it is about making green.

The American Council for Capital Formation (ACCF) said CalPERS board members have overemphasized what are called Environmental, Social and Governance (ESG) investments -- and the sluggish returns on those investments are dragging down the pension fund's bottom line.

The 30-page critique said CalPERS' ESG investments have not been "translating into wins for its pensioners or the taxpayers who bear the burden for covering shortfalls" and "the use of these funds to advance an environmental agenda has plunged the system and California into a building financial crisis."

CalPERS officials fired back, defending the financial stability of the fund and the rationale for ESG investments.

"We're passionate about and fully committed to advocating on behalf of shareowners for the right to have a say in how the companies we invest in are run," CalPERS information officer Megan White said in an email. "We stand behind our efforts. Any suggestion that we stop engaging with companies on behalf of our members is laughable."

Established in 1932, the California Public Employees Retirement System (CalPERS) is the nation's largest public pension fund, covering 1.8 million public workers and retirees in California. Earlier this year, the fund reported $326 billion in market value.

But the ACCF report, pointing at CalPERS' annual report released last month, said the pension fund's future liability exceeds its assets by $138 billion.

The report takes aim at CalPERS' nine worst-performing funds, four of which were ESG investments. By contrast, the pension fund's 25 top-performing funds were not ESG investments.

ACCF criticized CalPERS investments in a number of solar panel manufacturers that soured when the market hit a glut. The report also questioned the pension board's plans to increase climate-related shareholder proposals from 12 to 17.

The report also took aim at individual board members. ACCF said a review of public disclosure records of the fund's chief investment officer and two senior executives did not show any ESG investments, prompting the report to call it"ESG investing for thee -- but not for me."

Click here to read the CalPERS annual report

Click here to read the ACCF's report criticizing CalPERS

White at CalPERS said the pension fund's board members are reflecting the wishes of its constituents.

"We have successfully pushed companies to publicly report on the impact that climate change is having on their business, and we have successfully pushed them to open up their board selection process because companies with a diverse group of talented people on their boards perform better financially," White said.

ACCF said the CalPERS board's fiduciary responsibilities should take ultimate priority because shortfalls would ultimately be borne by taxpayers.

"Individual investors have every right to invest in assets, ventures or enterprises that align with causes and issues they deem worthy and important -- irrespective of expectations on returns or long-term performance. After all, it's their money," the report said.

"But large, public funds like CalPERS should be held to a different standard, and be expected to execute an investment strategy that prioritizes stable, long-term performance for beneficiaries who expect and need these resources to be available to support their retirement."

Ironically, the ACCF report comes at a time when CalPERS has been criticized by some for not taking a more aggressive stance on environmental, political and social issues.

Activists and some Democrats in the California Statehouse earlier this year called on CalPERS to divest from some companies with investments in projects ranging from the Dakota Access Pipeline to President Donald Trump's plans to build a border wall.

CalPERS has already stopped investing in coal and tobacco interests.

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