CalPERS Consultant: Divestment Has Cost Fund Billions

CalPERS on Monday began the process of divesting from its thermal coal holdings, as required by a law signed this month by California Gov. Jerry Brown.

There is much debate over whether divestment is effective – both in terms of the battle against climate change, and the maximization of investment returns.

When it comes to the latter, one of CalPERS’ consultants says divestment has hurt the fund over the years.

From Reuters:

A consultant warned on Monday that past efforts to divert CalPERS’ money away from investments deemed unethical have cost the largest U.S. public pension fund between $4 billion and $8 billion.

In the past, CalPERS has pulled cash out of tobacco and firearm-related companies as well as from investments in South Africa, Iran, Sudan and some emerging markets on political grounds.

Five of the six divestments campaigns undertaken by CalPers so far have hurt its returns, Andrew Junkin president of Wilshire Consulting, told a meeting of the CalPERS Investment Committee in Sacramento.

Junkin said that while divestment does not necessarily have to weigh down returns, it does require financial transaction costs that can add up.

He also expressed doubts about the effectiveness of divestment, seen by environmentalists as an important front in the battle against climate change.

“By divesting you are really giving up your voice, your ability to influence change,” Junkin said. “And you’ve just sold it to somebody else. Those shares are going to get voted by somebody else now instead of by you, and you don’t get to advance your goals.”

Divestment proponents also hope the California law will send a message that the United States is serious about combating climate change, ahead of international climate change talks in Paris later this year.

A document by CalPERS staff said coal companies have “significantly underperformed” a benchmark over the last year but have slightly outperformed over the last 10 years.

Coal represents only a small fraction – $83 million – of the fund’s $300 billion portfolio.

Photo by  Paul Falardeau via Flickr CC License