CalPERS' board on Tuesday voted to oppose two state bills: one requiring divestment from companies with business operations in Russia or Belarus and another mandating divestment from fossil fuels.
"I think it's important to start by saying that CalPERS continues to support the people of Ukraine and condemn this unjustified and unprovoked attack by Russia," said Danny Brown, chief of CalPERS' legislative affairs division, at the board meeting.
Even so, the staff recommended opposing the bill because it went farther than the U.S. sanctions against Russia, among other reasons. Staff has determined that the bill if passed as currently written would require the $474.5 billion California Public Employees' Retirement System, Sacramento, to potentially divest about $185 billion from more than 3,000 companies that could meet the bill's definition of active business operations in Russia or Belarus as of Dec. 31.
However, the staff would have to conduct further research to identify the exact nature of the revenues each company derives from Russia or Belarus, Mr. Brown said.
In addition, the bill's time frame to divest is too short and contains a sunset clause that "may never be triggered," he said. One of the sunset events is a determination by the U.S. State Department that Russia and Belarus have halted their aggression or occupation of Ukraine.
"It is our understanding that the State Department does not make such determinations," Mr. Brown said.
Also following the staff's recommendation, the board voted to oppose a bill requiring CalPERS and the $318.1 billion California State Teachers' Retirement System, West Sacramento, from making new investments in fossil fuel companies and requiring divestment in fossil fuel companies by July 1, 2027, if consistent with the pension funds' fiduciary duty.
Based on the investment team's preliminary analysis, CalPERS' staff estimates CalPERS' exposure to fossil fuel companies was $7.4 billion as of Dec. 31 and the transaction costs associated with divestment would be between $75 million and $100 million.
CalPERS' policy is to engage with companies rather than divest, Mr. Brown said.
If CalPERS divests from fossil fuel companies, "we will not have a seat at the table, and our seat will be taken by investors that may not have the same interest in long-term sustainability as CalPERS," Mr. Brown said.
