The California State Teachers’ Retirement System (CalSTRS) has formally rejected calls from environmentalists for divestment of its fossil fuel portfolio.
CalSTRS, in a required environmental report to the California state legislature, said that divesting of the fossil fuel stocks could have a detrimental effect on the teachers’ pension fund.
“We believe divestment is a last resort action that can have a lasting negative impact on the health of the fund,” the report said, “while severely limiting our ability to shape corporate behavior for long-term sustainable growth.”
CalSTRS says it “is imperative” to continue to actively engage companies on climate change issues, both fossil fuel and non-fossil fuel companies.
“We are focused on understanding and responding to the risks that climate change presents to our portfolio and to sustainable economic growth,” the report said.
CalSTRS says its engagement with companies will help reduce carbon emissions in the global economy and will position its $248 billion portfolio to be resilient to a changing world.
The pension plan’s refusal to divest is no surprise. The pension plan’s Chief Investment Officer Chris Ailman has made it clear publicly and often that he opposes divestment of fossil fuel stocks.
The organization puts its position officially on the record as part of the report.
California state lawmakers passed legislation in 2018 requiring both CalSTRS and the California Public Employees’ Retirement System (CalPERS) to issue a report by December 31, 2019, on climate change risk in their portfolios and how they plan to deal with it.
CalPERS released its report on Dec. 9; CalSTRS waited until the last minute to issue its report on Dec. 31. Both pension plans will be required to issue a new report once every three years.
The teachers retirement program also rejected calls by environmental advocates for divestment of fossil fuel stocks. The plan said it favored engagement of companies to help advocate their transformation to cleaner energy futures.
Both pension plans are among the most active among public pension plans in the U.S. on climate change issues, having whole groups aimed at engaging corporations over sustainability issues.
That has not satisfied environmental advocates whose goal is divestment by the pension plans of fossil fuel stock.
Both pension plans argued that if they sell their stock or other portfolio holdings in companies, they won’t have a seat at the table to influence corporate behavior.
Janet Cox, an environmental advocate, who has pushed both CalSTRS and CalPERS to divest of their fossil fuel holdings, said the reports made by both pension systems do not name the portfolio companies most contributing to climate risk.
Cox said the intent of the legislation passed by lawmakers was to prepare the staff and boards of the two pension plans to share climate-resilient investment policy, something that is not ultimately occurring.
“These initial reports,” she said of the CalSTRS and CalPERS climate reports, “take some steps in the right direction, but the lack of any nexus between risk reporting and investment policy is troubling and surprising.”
CalSTRS acknowledges that climate change could have an impact on its portfolio. The pension plan is the second largest in the U.S. by assets under management, only surpassed by CalPERS.
“CalSTRS recognizes that the low-carbon transition impacts the performance of our Investment Portfolio across all companies, sectors, regions and asset classes,” said Investment Committee Chair Harry Keiley.