Governor Urges State Retirement Systems to Change Their Investment Strategies

By Kristin Withrow posted 09-29-2020 07:39 AM

  

Last week, as part of Climate Week 2020, Governor Gavin Newsom announced that the California Department of Finance released their report titled “California Climate Investment Framework” in response to an Executive Order the Governor issued in 2019. The report provides “an investment strategy for the state’s pension funds to leverage their assets and develop goals to act upon in the areas of disclosure and engagement that will result in investment decisions that properly recognize climate risk.”

As the Governor stated in the news release announcing the report, he believes that the “state’s pension funds should increase their allocation to low-carbon indexes and increase their investments in sustainable technologies and other green assets.”

While CSDA appreciates the efforts of the State to address the impacts of climate change, we also appreciate the efforts of our State retirement systems, including CalPERS, to ensure our pension system is on firm financial footing through sound strategic investments with minimal political influence. Public employers, employees, and retirees are counting on public retirement systems to uphold their fiduciary responsibility.

CalPERS has already, and plans to continue to, make responsible and sustainable environment and social investments. In 2013 CalPERS launched its Environmental, Social and Governance (ESG) integration. The Sustainable Investments team at CalPERS provides expertise and support for significant ESG risks and opportunities that can affect their investments. These efforts have led to both investments and divestments in the areas of water, disruptive technologies, and economic inequality.

As stated on the CalPERS website “[i]n 2016, each asset class developed a set of sustainable investment practice guidelines that reflects their needs and strategies. The guidelines integrate existing beliefs, principles, and policies related to ESG considerations, including our Investment Beliefs, Global Governance Principles, and United Nations-supported Six Principles for Responsible Investment.”

Over the last several years a legislative trend has arisen whereby legislators introduce legislation that would have the State’s various retirement systems divest from certain investments that they believe don’t mesh with the State’s political goals. In response, CSDA adopted a CalPERS Policy Principal that reads in part:

  • Divestment as an investment strategy can present challenging conflicts for CalPERS in balancing current affairs against its fiduciary duty to maximize retirement investments.
  • CSDA supports CalPERS’ priority to its members as stated in the State Constitution Article 16, Section 17, "[a] retirement board’s duty to its participants and their beneficiaries shall take precedence over any other duty."
  • CSDA opposes any efforts that would divert CalPERS from its duty to its members, including divestment of CalPERS assets to achieve political objectives if the divestment would have a negative impact on the overall health of the fund.

CSDA will continue working with CalPERS to ensure investment strategies, including ESG investments, meet the needs of public employers, employees, and retirees to ensure a secure and sustainable retirement following a life of public service.

For more information about what efforts CalPERS is already making to address climate change through responsible investing you can visit CalPERS website, or read their recent report entitled CalPERS Investment Strategy on Climate Change: First Response to the Task Force on Climate-related Financial Disclosures.
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