Largest US public pension fund slowing corporate climate action, reports accusations

Does engaging with oil and gas giants by staying invested in them – keeping a “seat at the table” – help fight climate change?

A new report doesn’t suggest much — at least judging by the track record of California’s Public Employees Retirement System (CalPERS).

Environmental group Fossil Free California’s report takes the public pension fund to task for its results to date, pointing to its history of promoting the “importance of corporate engagement on climate change” in public statements, while by simultaneously voting against climate measures at shareholder meetings.

The report details dozens of votes against climate action by CalPERS this year – including votes against greenhouse gas reduction targets at Royal Dutch Shell, against reporting and reducing greenhouse gas emissions at BP, and against pushing the big banks to align themselves with “net zero”. by 2050”.

In fact, CalPERS has voted against every major U.S. and Canadian bank climate resolution so far this year, according to the report.

The report also casts doubt on one of the biggest achievements of CalPERS’ engagement strategy – the election of several new members to ExxonMobil’s board of directors last year, named by the activist investment firm. Engine No. 1. The report blames the directors of Engine No. 1 for voting against two recent proposals to set greenhouse gas targets that would take into account pollution caused by fossil fuels sold by ExxonMobil, and to report on low carbon business plans.

“Despite their best efforts, CalPERS and [California’s other major pension fund] CalSTRS has failed to persuade fossil fuel companies to reduce their greenhouse gas emissions, increase their renewable energy production, or switch from fossil fuels to renewables,” the report concludes. “By opposing climate proposals at the very companies they claim to influence, the funds’ shareholder activism is not only ineffective – it undermines climate action.”

California lawmakers are currently considering a bill that would incentivize these pension funds, which invest retirement funds for state employees — many of whom, like state firefighters, who are now on the front lines of the climate crisis – to abandon their investments in fossil fuel producers.

The fund has about $7.4 billion in fossil fuel investments that the bill would require them to phase out. In April, its board of directors voted against the law, arguing that it would lose its “seat at the table”, to be replaced by investors who “may not have the same interest in long-term sustainability”. term as CalPERS”.

CalPERS declined to comment on the new report from Fossil Free California.

Engine #1 stalls?

In late May, ExxonMobil investors voted for the first time on a climate proposal aimed at pushing the company to adopt climate plans aligned with the Paris Agreement, put forward by Dutch climate activists Follow This. Exxon, campaigners said, is the latest oil giant still trying to ignore the climate effects of burning the fossil fuels it sells — its so-called Scope 3 emissions — when setting its climate targets. .

“With their votes, ExxonMobil shareholders will show which future they prefer,” Follow This told shareholders gathered at Exxon’s annual general meeting, “a world of rising oil and gas production and changing devastating climate or a world that cuts emissions in order to meet the goal of the Paris climate agreement.

The vote failed, despite support from what Follow This called “a small but significant minority” of about a third of ExxonMobil investors.

Engine No. 1 — a hedge fund that last year, with backing from CalPERS, secured three positions on Exxon’s board of directors for its slate of ‘climate-friendly’ nominees — was among those who declined. to support him.

The hedge fund has also spoken out against a proposal to hold the oil giant to account for its plans for a low-carbon trading strategy, it recently revealed on its website.

The No.1 engine, however, backed a vote requiring the company to produce a report on reaching “net zero” by 2050 and another on reducing plastic pollution. Just before the vote, Engine #1 also released a statement touting ExxonMobil’s actions to reduce Scope 1 and 2 emissions, but without any mention of Scope 3, the category that covers approximately 90% of Exxon’s carbon footprint.

ExxonMobil management had cited the war in Ukraine as a reason for delaying the Follow This proposal, with the latter responding that “both crises can and should be addressed simultaneously by shifting investment to renewables, particularly current windfall profits.” “.

“So much for Engine No. 1 climate activism at ExxonMobil,” ran the March headline of an op-ed by Bernard S. Sharfman of George Mason University’s Antonin Scalia School of Law. Sharfman praised the fund’s founder, who had just penned a column supporting more fracking, writing, “As I argued in the Harvard Business Law Review, the #1 driver activism at Exxon wasn’t really aiming to mitigate climate change. It was a clever way to generate investor interest in the launch of two ETFs sponsored by Engine No. 1.”

Former No. 1 engine officials had warned that change would necessarily be slow. “I think we’ve been pretty clear in the campaign that any transformation is going to take a long time,” said Charlie Penner, who was responsible for the hedge fund’s active engagement but left the No. 1 engine at the end. of last year, told Inside Climate News shortly. ahead of Exxon’s annual meeting this year.

The most recent reports from the United Nations Intergovernmental Panel on Climate Change show that the impacts of global warming are changing much faster than many predicted just 10 years ago, and a further lag will put a viable future out of reach.

Climate Action Voting Template

ExxonMobil isn’t the only fossil fuel giant CalPERS continues to invest in.

This year, CalPERS voted against shareholder proposals from BP, Equinor, Occidental, Royal Dutch Shell and Woodside Petroleum, Fossil Free California found.

Measures included efforts to urge fossil fuel companies to reduce their greenhouse gas emissions, approve energy transition strategies, create a fund for oil workers, stop exploring other fields of undiscovered oil and gas and to produce reports on greenhouse gas emissions.

Its voting record at big banks showed the pension fund opposed calls to align banks with international goals of “net zero by 2050”, to stop funding fossil fuel expansion and to take the Paris Agreement seriously.

The failure of CalPERS to support these measures, according to Fossil Free California, will have impacts not only on the amount of money that retirees will have in retirement, but also on the world in which they will retire.

CalPERS sign during a 2014 California drought. Credit: Kevin Cortopassi (CC BY-ND 2.0)

Success of “climate risk”

CalPERS has previously cited agreements reached by BP and Royal Dutch Shell in 2015 on climate risk reporting as examples of the benefits of “keeping our place at the table.” The fund also highlighted the successes of climate risk reporting at mining giants Rio Tinto, Anglo American and Glencore and the 2017 appointment of atmospheric scientist Susan Avery to ExxonMobil’s board. “Investor engagement was a critical part of the campaigns’ success,” CalPERS wrote in a March 2017 fact sheet.

CalPERS has been a driving force behind the Climate Action 100+ campaign, which promotes investor engagement on climate – but some have also questioned their rate of success. “No company has fully aligned its capital spending to a 1.5C future or produced financials that reflect climate risks,” ShareAction CEO Catherine Howarth wrote in a May op-ed to Reuters. “And each targeted oil and gas company is planning projects that are not in line with the goals of the Paris Climate Agreement.”

CalPERS also cited its fiduciary duties, which require the fund to act in the best interest of its members, in opposing divestment. “These duties include an explicit obligation to diversify the portfolio to minimize the risk of loss and maximize the rate of return,” CalPERS writes in a fact sheet.

It is not clear that there is a consensus in the financial world on how those with fiduciary obligations should approach climate change and fossil fuel companies, based solely on the financial outlook of the industry. . The University of California pension system, for example, recently sent its members a letter informing them that it had “found that the long-term prospects of companies holding fossil fuel reserves no longer meet the financial criteria for inclusion” in their portfolio.

Proponents of divestment have criticized the concept of engagement, noting for example that shareholder votes are often not binding on company management, making them unreliable.

“The pledge is likely to help Big Oil and Big Coal postpone the day when governments limit the burning of fossil fuels,” wrote retired lawyer and former Security and Trade Commissioner Bevis Longstreth, who had supported the successful fossil fuel divestment campaign at Harvard University. in 2014. “Engaging with institutional investors like Harvard gives fossil fuel giants the protective blanket they need to extend the process of transitioning to renewable energy for as long as they can.”

“It legitimizes conversation rather than action,” Longstreth wrote.

Top climate experts are urging investors and governments to start making different choices.

“The war-exacerbated energy crisis in Ukraine has seen a perilous doubling of fossil fuels by major economies. The war has reinforced an abject lesson: our energy mix is ​​broken,” UN chief António Guterres said at a summit in Austria on Tuesday. “If we had invested heavily in renewables in the past, we wouldn’t be so dramatically at the mercy of volatile fossil fuel markets.”

Dolores W. Simon