sustainability | Pension360

Fossil Fuel Divestment Put to Vote At Dutch Pension Funds

The members of six Dutch pension funds will vote on whether $35 billion in fund assets should be divested from coal, oil and gas investments.

Divestment advocates filed a resolution Monday asking the six funds to sell off their fossil fuel investments by 2018, and to use shareholder power to encourage energy companies to use more sustainable practices.

The majority of the funds’ members will need to vote in favor of the resolution for it to pass.

From the Guardian:

The six funds being targeted provide pensions for academics (MP Pension), engineers (DIP and ISP), lawyers and economists (JØP), architects (AP) and veterinarians (PJD), over 200,000 people in total.

The resolution filed to each fund will ask the board to “exclude investments in the 100 largest coal companies as soon as possible, but at the latest before the end of 2018, and to engage in, and annually document, a dialogue with owned oil and gas companies to exclude their investments in high-risk extraction projects, eg tar sands, deepwater drilling and drilling in Arctic.” The votes will take place in April.

In 2014, resolutions urging divestment from the top 100 coal and top 100 oil and gas companies by 2020 were filed at three of the funds received and received significant support: MP pension (49% in favour), DIP (46%) and JØP (38%).

“I think that probably for these three pension funds, we will have a majority this year,” said Meinert Larsen. “We have the impression the pension boards are moving.”

The pension funds in question manage $35 billion in assets and cover about 5 percent of the Danish workforce.

CalPERS, CalSTRS to Step Up Climate Change Engagement Efforts

CalPERS and CalSTRS have issued a joint statement recounting their track records on engaging corporations on the topic of climate change. The statement also outlines future initiatives aimed at stepping up their corporate engagement on the sustainability front.

From the statement:

We recognize climate change as a material risk to society, the economy, and the impacts on our investment decisions. We have been at the forefront of tackling climate change issues through policy advocacy, engagement with portfolio companies and investing in climate change solutions.

CalSTRS and CalPERS both have well-established, thorough vetting processes for potential investments, which seek to test not only for financial potential, but for social, human and environmental impacts, as well.

CalSTRS developed an investment policy for mitigating environmental, social and governance risks under its CalSTRS 21 Risk Factors, adopted in 2008.

* Included in the 21 factors are points specific to environmental concerns such as air quality, water quality, climate change, and land protection.

* This policy guides the Teachers’ Retirement Board’s investment decisions.

* CalSTRS internal ‘Green Team,’ made up of representatives across all investment groups, further identifies ways to avoid or mitigate risks to the investment portfolio posed by environmental, social and governance factors.

CalPERS adopted Investment Beliefs addressing Climate Change issues:

* CalPERS believes long-term value creation requires effective management of three forms of capital: financial, physical and human.

* Investors must consider risk factors, for example climate change and natural resource availability that could have a material impact on portfolio returns

Read the full statement here.

The statement comes as the California legislature considers a measure that would force the pension funds to divest from all coal holdings. The funds have come out against the proposal.

Photo by Paul Falardeau via Flickr CC License

Study: Pensions Put Pressure on Private Equity to Formulate Environmental, Social Investment Policies

Research from the London Business School shows that the vast majority of large private equity firms – 85 percent – are feeling increased pressure from Europe’s institutional investors to incorporate environmental, social and governance (ESG) considerations into their investment policies and processes.

Details from Investments & Pensions Europe:

The study was based on responses from 42 private equity firms with collective assets under management of more than $640bn.

“Issues such as climate change, sustainability, consumer protection, social responsibility and employee engagement are no longer viewed solely as components of risk management, but have also gained recognition in recent years as important drivers of firm value, particularly in the long term,” the study said.

[…]

But even though ESG policies were being adopted more and more, there were still some big obstacles to these being implemented, the study showed.

The most notable barrier was the difficulty in collecting the necessary data, it said.

Also, some respondents cited the attitude of internal managers as a barrier to implementation.

“It appears that, while ESG integration has become common, there remain pockets of internal managerial resistance to the whole idea of considering such issues as relevant for investment decisions,” the study said.

[…]

Ioannis Ioannou, assistant professor of strategy and entrepreneurship at the London Business School, said: “The private equity industry is increasingly placing greater importance to ESG, moving it from a purely compliance and risk mitigating strategy to a key long-term strategy through which private equity firms pursue value creation.”

Read the research report here.

Photo by penagate via Flickr CC License

CalPERS CEO: “The Companies We Invest In Have to Be Sustainable”

CalPERS CEO Anne Stausboll sat down with the Financial Times for an extensive interview last week.

She talked about her push to make CalPERS an agent of change on social and environmental issues, including the use of shareholder power to engage with companies about sustainable business practices.

Here’s that excerpt, from the Financial Times:

Where Ms Stausboll is most passionate about the power of Calpers to make a difference is in the social and environmental sphere. A vegetarian on moral grounds since her university days, she began her career as a lawyer fighting for equal pay for female workers. On her way to the top she has moved back and forth between Calpers and Californian government, working as deputy to the state treasurer, Phil Angelides, at the turn of the century, when he was pushing for US public pension funds to use their power as shareholders to encourage greener business practices.

Today, Calpers is urging corporations to assess the risks that climate change pose to their businesses; it will be putting motions to shareholder meetings demanding as much. The idea is these shareholder resolutions will be a not-so-subtle nudge to executives to push for more environmentally friendly practices, not just at oil and gas companies but in the insurance sector, in agriculture and across corporate America.

“Our portfolio has to be sustainable for decades and generations, and . . . to make the portfolio sustainable, the companies we invest in have to be sustainable,” she says.

The interview also covers CalPERS’ push for corporate board diversity, the fund’s corruption scandal and its quest to reduce investment expenses.

Read the full interview here.

Photo by rocor via Flickr CC License

Sustainable Investing Experts Weigh In On Fossil Fuel Divestment; Is Engagement A Better Strategy?

Different pension funds have different opinions on how climate change should affect investment strategy.

Some, like Norway’s largest pension, are willing to divest from certain fossil fuels entirely.

Others, like CalPERS, prefer to use their leverage as major shareholders to engage with companies rather than divest. Many others cite their fiduciary duties to pensioners as a reason they can’t divest from fossil fuels.

What do sustainable investing experts have to say? The Financial Times talked to them:

“The idea that shaming an industry will somehow reduce greenhouse gas emissions is not correct,” says Jonathan Naimon, managing director of Light Green Advisors, a New York asset management firm that specialises in environmental sustainability investing. “It isn’t like divestors are bringing any solutions to the table.”

“It’s actually projects and technologies that reduce emissions and the people developing them are in energy supply companies as well as energy-using companies,” he adds.

[…]

But Bill McKibben, the US environmental activist and writer who co-founded the 350.org climate campaign group spearheading the divestment push, says engagement strategies only suited some companies.

“If we have a problem with Apple paying Chinese workers bad wages you don’t need to throw away your iPhone and boycott Apple stock. You need to put pressure on them so they pay people better and the price of an iPhone goes up a dollar and everyone’s happy,” he says.

But he argues fossil fuel extraction companies are a very different case because their value is so dependent on their reserves of oil, gas and coal. “There’s no way that engagement can persuade them to get out of this business as long as it remains a profitable business,” he says

“The idea that anyone else is going to merrily persuade Chevron or BP that they want to be in the renewables business or something is nuts,” he says. He argues this would only happen with government pressure and that in turn would require the dilution of energy companies’ political power by efforts such as the divestment movement.

[…]

Carbon Tracker itself does not recommend a pure divestment strategy.

“We’re not advocating blanket divestment,” said Anthony Hobley, the group’s chief executive. “We think both engagement and divestment together will achieve more. The sum is greater than the parts because either alone isn’t going to achieve the ultimate objective of a climate-secure energy system.”

What does an oil executive think about fossil fuel divestment? Click here to read his take.

Photo by Paul Falardeau via Flickr CC License

Florida Town Negotiates Pension Changes With Police Force

The Florida town of Delray Beach this week negotiated a series of pension changes with its police force; the town eliminated early retirement for new hires and lowered the multiplier used to calculate pension benefits for new and current employees.

Un-vested employees also won’t be able to use overtime to boost their pension benefits.

In return, employees will see higher salaries.

From Boca:

Delray Beach successfully completed the city’s push for pension reform this week when the Police Benevolent Association ratified a three-year contract that will save the city $21.3 million in pension contributions over 30 years.

The vote by the police department’s officers and sergeants was overwhelming. Ninety-two approved ratification while just 11 opposed it. The contract will be retroactive until Oct. 1, the start of Delray’s budget year.

For pensions, the contract divides the officers and sergeants into four tiers. Tier 1 includes all employees with at least 20 years of service and all retirees. Their pension benefits won’t change.

Tier 2 includes those with between 10 and 20 years of employment. The “multiplier” used to calculate their benefits will drop from 3.5 percent to 3 percent, and their starting benefit will be limited to $108,000, which is still generous. The lower multiplier also will apply to those in Tier 3—employees with fewer than 10 years of service, meaning they are not yet vested. For new hires—Tier 4—the multiplier will be 2.75 percent, and early retirement will be eliminated.

Not surprisingly, the contract favors seniority, which is typical with most union deals. For all but the new hires, vested officers and sergeants will get at least a 1 percent annual cost-of-living increase in their pensions. That is a perk almost no private-sector employees enjoy.

Still, the contract does a lot for pension sustainability. New hires and those not vested won’t be able to use overtime in calculating pension benefits. Delray Beach should insist on continuing that change in future contract negotiations. New hires won’t get early retirement, and their benefit will be limited to roughly two-thirds of their final average salary.

Just as important, the contract achieves the city commission’s goal of focusing more on pay for police officers when they are working. The annual starting salary will be $48,000 in the first year of the contract. The officers and sergeants will get an immediate raise to compensate for the previous three years, when salaries were frozen. There will be a merit system for raises.

In an email, Mayor Cary Glickstein said, “We achieved our objectives of substantive pension reform, with benefit reductions of over $21 million and re-establishing taxpayer control of the board that manages the pension fund’s assets, while providing substantial wage increases required to attract and retain the best law enforcement personnel in South Florida.”

Delray Beach’s City Manager, Don Cooper, is expected to attempt to negotiate a similar contract with the city’s firefighters.

Photo by pshab via Flickr CC License

Video: South African Pension Head Talks Investing for the Future

In this video, John Oliphant – Head of Investments at the $106 billion Government Employees Pension Fund of South Africa – discusses “irresponsible” investing and how his fund is investing with sustainability issues in mind. How has the strategy worked out for the GEPF? And would it work with other funds?

Oliphant begins by giving some talking points about the GEPF, and the real discussion begins around the 5:00 mark.

Video: The Sustainability of the U.S. Pension and Social Security Systems

Here’s full video of a panel discussion that was held on November 14 as part of the 2014 National Lawyers Convention. The discussion was titled “”Intergenerational Equity and Social Security, Medicare, Obamacare, and Pensions”; the panelists discuss the sustainability of Social Security, the pension system, and similar programs.

The panelists:

–Hon. Christopher C. DeMuth, Distinguished Fellow, Hudson Institute, Inc., and former Administrator for Information and Regulatory Affairs, U.S. Office of Management and Budget

–Prof. John O. McGinnis, George C. Dix Professor in Constitutional Law, Northwestern University School of Law

–Prof. David A. Weisbach, Walter J. Blum Professor of Law and Senior Fellow, The Computation Institute of the University of Chicago and Argonne National Laboratory

–Moderator: Hon. Frank H. Easterbrook, U.S. Court of Appeals, Seventh Circuit

From the video description:

Several major federal programs directly tax the young to provide benefits to the elderly. This is a main feature of the Affordable Care Act, the Social Security System as it currently works, and of the laws guaranteeing pensions. In addition, the national debt raises intergenerational equity issues. What obligations do these debts impose on the young? Are they all of a piece or are the answers different in each case? Is it true that this generation is likely to be poorer than the previous one? What role does our legal system play in this? How will the law address pensions that contribute to bankrupting cities or states? What is the nature of the Social Security contract?

CalSTRS Stepped Up “Green” Bond-Buying By 300 Percent In 2014

CalSTRS released its Green Initiative Task Force report on Wednesday. The report highlights the pension fund’s “environmental-themed investments” and risk-management efforts related to climate change.

The report reveals that it increased its purchases of “green bonds” by 300 percent in 2014. Investopedia defines a “green bond”:

These bonds are created to encourage sustainability and the development of brownfield sites. The tax-exempt status makes purchasing a green bond a more attractive investment when compared to a comparable taxable bond. To qualify for green bond status the development must take the form of any of the following:

1) At least 75% of the building is registered for LEED certification;

2) The development project will receive at least $5 million from the municipality or State; and

3) The building is at least one million square feet in size, or 20 acres in size.

From a CalSTRS press release:

California State Teachers’ Retirement System’s (CalSTRS) eighth annual Green Initiative Task Force report shows an almost 300 percent increase in green bond purchases within the Fixed Income portfolio. This year, the Teachers’ Retirement Board identified sustainable investing as a key, strategic priority, which is reflected in the report and other initiatives.

The growth in green bonds aligns with a commitment that CalSTRS Chief Executive Officer Jack Ehnes made during his participation in the 2014 Climate Summit where he announced that CalSTRS will more than double the fund’s clean energy and technology investments of $1.4 billion to $3.7 billion over the next five years. The move is in response to United Nations Secretary-General Ban Ki-moon’s call for bold action to build resilience to the impacts of climate change.

“Targeting the clean energy and technology sector provides a good investment opportunity while positioning CalSTRS for a low-carbon future,” noted Ehnes. “But more importantly, we hope our actions will help catalyze incentives for comprehensive climate change policies that ultimately lead up to a global agreement in Paris in 2015.”

CalSTRS sees a growing number of investment opportunities in low-carbon solutions, especially as renewable technology costs come down and regional clean energy policies take hold.
“Our growth of green-related investments is a good example of successful engagement on environmental and climate risk issues,” said CalSTRS Chief Investment Officer Christopher J. Ailman. “Looking forward, we hope to bring more attention to the role large institutional investor’s play in financing green bonds, clean energy and climate change initiatives.”

The entire Green Initiative Task Force report can be read here.

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