A rare insider report from the California Public Employees’ Retirement System (CalPERS) details how the pension plan played a behind-the-scenes role in the controversy over the Dakota Access Pipeline project, which ultimately helped lead to several financial institutions giving up their role in funding the project.
The report, released March 19, shows how CalPERS engaged the 17 banks financing the project by helping develop an investors’ statement calling for a rerouting of the pipeline, meeting with the pipeline developer, and convening with several other investors a multi-stakeholder briefing with the leadership of the Standing Rock Sioux Tribe.
The now-operating 1,172-mile pipeline follows a route near the Standing Rock Sioux tribe’s reservation in North Dakota. While the tribe supported the project generally, it protested the selected route’s proximity to the tribes’ water supplies, sacred sites, and treaty territory.
After CalPERS intervened with other investors, three banks—BNP Paribas, Norwegian bank DNB, and Dutch Bank ING—sold their loans in the pipeline project, the CalPERS report said. Another bank, Wells Fargo, reviewed its indigenous peoples’ rights statement to ensure that its due diligence process includes a focus on indigenous communities, including whether they were properly consulted, the report said.
Some of its efforts were unsuccessful. “CalPERS’ engagements did not have an impact on the route chosen for the pipeline,” the report says. “We were constrained by the lack of voting rights due to ETP (pipeline developer Energy Transfer Partners) being a master limited partnership. Therefore, CalPERS had to follow an indirect route, by engaging as shareowners of the banks financing the pipeline.”
CalPERS also supported a shareowner proposal in connection with Wells Fargo’s 2017 proxy statement, requesting that the company adopt a global policy regarding the rights of indigenous peoples, but it only gathered 16% of the vote, the report says. CalPERS said it expects another proposal in the 2018 proxy season.
While engaging the pipeline builders and banks funding the project, the $360.4 billion CalPERS, the largest US public pension plan, stuck to its corporate engagement plan.
It refused to divest of up to $4 billion in stocks and bonds. Most of the money was invested in the banks financing the pipeline; CalPERS has around $57 million invested in ETP, system data shows.
CalPERS in the past has angered activists who want it to divest from its billions of holdings in oil and gas companies.
“There is considerable evidence that divesting is an ineffective strategy for achieving social or political goals, since the consequence is generally a mere transfer of ownership of divested assets from one investor to another,” investment staff said in comments on the Dakota pipeline project last spring.
The statement came after a California state lawmaker, Assemblyman Ash Kalra, D-San Jose, sponsored legislation calling on CalPERS and the California State Teachers’ Retirement System (CalSTRS) to divest from companies building and financing the pipeline.
CalPERS changed the conversion on the Dakota pipeline issue from divestment to engagement after it convinced Kalra to modify his 2017 bill.
Instead the final bill that was signed by Gov. Edmund G. Brown in October 2017 called for CalPERS and CalSTRS to release separate reports documenting their engagement activities and to consider the sovereign and indigenous rights of Indian tribes in connection with CalPERS investment policies. CalSTRS has yet to release its report.
Kalra acknowledged the changes in his bill at the CalPERS Investment Committee Investment meeting on March 19, praising CalPERS for its engagement and for championing the rights of indigenous people.
The CalPERS Investment Committee meeting also approved the first reading of a resolution Monday that calls for Indian tribes’ informed consent relative to other CalPERS investments projects that would affect them. It’s unclear if such a policy would put more pressure on CalPERS to divest from companies involved in investment projects affecting Indian tribes in the future, if the tribes did not give consent.
CalPERS Investment Director Ann Simpson was not immediately available for comment
CalPERS investment officials and board members have generally been against divestment, although the retirement system has divested from the stock of gun manufacturers at the direction of the state legislature and has been a leader in divestment from tobacco stocks.
CalPERS considered reinvesting in tobacco stocks in 2016 after a report showed it has lost more than $3 billion by having a tobacco-free portfolio for 16 years but rejected the idea after outrage by health advocates.