CalPERS, CalSTRS to Step Up Climate Change Engagement Efforts

smoke stack

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

CalSTRS Updates Corporate Governance Principles; Supports Board Nomination Power For Prominent Shareholders

board room chair

CalSTRS has updated its set of corporate governance principles to include support for proxy access – the right of a shareholder to nominate corporate board members.

The pension fund supports giving proxy access to shareholders that own at least three percent of a company’s shares for at least three years.

More from a release:

The updated principles, for the first time, specify CalSTRS support of proposals giving a group of shareholders, owning three percent of a company’s shares for at least three years, access to board nominations and to the company’s proxy statement. The CalSTRS Corporate Governance Principles lay out the basis for how the fund carries out its corporate governance initiatives. The Investment Committee adopted the updates at its February 6 meeting.

“CalSTRS has steadfastly supported the 2011 rule, proposed by the Securities and Exchange Commission, that allows shareholder groups access to board director nominations with what we call a three-and-three ownership structure,” said CalSTRS Director of Corporate Governance Anne Sheehan. “We firmly believe this is the most appropriate threshold for proxy access.”

[…]

Without a universal rule from regulators, CalSTRS and like-minded institutional investors have waged proxy access efforts, company by company.

“CalSTRS will, in the coming proxy season, support any shareholder proposal that includes a three-and-three group structure,” said Ms. Sheehan. “Our intention is to oppose any proxy access proposal with a structure more onerous than three-and-three ownership by a group of shareholders.”

[…]

CalSTRS Corporate Governance unit will also urge fellow shareholders to withhold their votes from company directors who either exclude a three-and-three shareholder proposal from the proxy statement, or who deliberately preempt such a shareholder proposal with one of their own that establishes more excessive thresholds.

Read the full release here.

Read the pension fund’s Corporate Governance Principles here.

California Bill Would Force CalPERS, CalSTRS To Divest From Coal

smoke stack

California Senate President Kevin de Leon has introduced a bill that would force the state’s pension funds to exit all coal investments.

Additionally, CalSTRS and CalPERS would be prohibited from making new coal investments until 18 months after the bill becomes law.

De Leon hinted in November that he would introduce such a bill, and the pension funds had already responded negatively to the proposal.

More from the Guardian:

The California senate leader, Kevin de Leon, said he was introducing a bill on Tuesday calling on the two state funds – CalPERS, the public employees’ pension fund, and CalSTRS, the teachers’ pension funds, drop all coal holdings.

The bill is part of a larger package of climate measures – endorsed by Governor Jerry Brown – aimed at gearing up California’s efforts to fight climate change.

The former US vice-president and climate champion Al Gore spoke to the CalSTRS board in Sacramento last Friday. Gore has long argued that fossil fuels are a risky proposition as a long-term investment.

“Our state’s largest pension funds also need to keep their eyes on the future,” De Leon, a Democrat, said in an email. “With coal power in retreat, and the value of coal dropping, we should be moving our massive state portfolios to lower carbon investments and focus on the growing clean-energy economy.”

The two state funds are the biggest targets so far of a divestment movement that has moved from college campuses towards mainstream financial conversation.

[…]

De Leon’s proposal calls on managers of both state funds to withdraw from all coal companies, and make no new investments in coal within 18 months after the bill becomes law.

It further calls on the two funds to explore the feasibility of expanding its divestment, by divesting entirely from fossil fuels – including natural gas – and report back to the state legislature by 2017.

CalSTRS and CalPERS have a combined $299 million invested in coal assets, according to de Leon’s office.

 

Photo by  Paul Falardeau via Flickr CC License

CalSTRS Looks to Partner Up For Direct Infrastructure Investments

The CalSTRS Building
The CalSTRS Building

CalSTRS is looking to team up with other institutional investors to bid directly on private infrastructure, according to the Wall Street Journal.

The fund’s investment staff is meeting today [Feb. 6] to amend its investment policy to allow such ventures.

More from the Wall Street Journal:

The nation’s second-largest public pension fund, California State Teachers’ Retirement System, is in talks with other institutional investors about joining forces to get stronger collective rights in infrastructure deals, said people involved in the discussions.

Members of Calstrs’s investment committee will meet Feb. 6 to discuss including new language to its investment policy that states the pension fund may “invest alongside with other like-minded investors” through “consortium investment opportunities.” The approach would be similar in investing through alliances or joint ventures.

The roughly $188.8 billion Calstrs, which established its infrastructure portfolio in 2010, has invested in that sector primarily through funds, said a spokesman. It hasn’t bid on private infrastructure investments with a club of direct investors.

The pension fund, which had a roughly $800 million infrastructure portfolio as of Sept. 30, is planning to build out its private infrastructure footprint to roughly $3 billion in the long term, senior officials said.

CalSTRS manages approximately $189 billion in pension assets.

 

Photo by Stephen Curtin via Flickr CC License

San Diego County Pension Trustee Decries Investment Strategy, CIO in Newspaper

megaphone

Samantha Begovich, a trustee for the San Diego County Employees Retirement Association (SDCERA), has penned a column in an area newspaper decrying the fund’s outsourced CIO, Salient Partners, and its investment strategy.

The fund voted last year to move on from Salient Partners and hire an in-house CIO after critics called Salient’s investment strategy too risky. But the process has been slow, and Salient could retain asset management duties until November 2015.

The public nature of Begovich’s complaints is unprecedented for a trustee of a fund that, until late last year, didn’t allow its board members to talk to the media at all.

From the column, published in the San Diego Union-Tribune:

I have repeatedly asked that Salient be sent a 30-day termination letter. CalPERS and CalSTRS posted 19 percent returns for 2014. SDCERA? 9 percent. The fund will be short $700 million of its Salient moonshot this fiscal year. How did this happen?

[…]

Critics allege one-sided staging in support of Salient. In August, realists took the mic. Expert after expert said our fund was at-risk. They said it is conflicted and imprudent having one subcontractor direct all $10 billion. They erupted at the irrationality of this adviser investing 50 percent of our money in his product line. If speech bubbles were above the experts, they would’ve said, “Say what?”

Imagine dealing with someone both clergy and salesperson to you. A word picture: Your rabbi/priest/cleric says, “It would be wise and virtuous for you to invest $2 billion in Advanced Manufacturing in the CaliBaja Mega Region. I have no track record, but you should invest in my CaliBaja Advanced Manufacturing firm.” See the tension? Asked why we weren’t in rival funds with stellar track records, Salient’s Lee Partridge said: “I don’t want to talk about my competition.”

Kudos to University of California Chief Investment Officer Jagdeep Singh Baccher, manager of $91 billion, for not laughing when I asked: What do you think of our investment strategy wherein 25 percent of our portfolio puts total value at risk of loss? He paused in disbelief and sagely said: “Well, I think you have your answer, don’t you?”

The fund’s board voted 8-1 last November to move CIO duties in-house and thus cut ties with Salient Partners.

 

Photo by  Gene Han via Flickr CC License

CalPERS, CalSTRS Nab $300 Million From Settlement With S&P in Suit Over Mortgage Ratings

The CalSTRS Building
The CalSTRS Building

It was revealed today that credit rating agency Standards & Poor’s has entered a $1.375 billion settlement with 18 states over the alleged inflated ratings it gave mortgage-backed securities which eventually turned toxic.

CalPERS and CalSTRS are the biggest individual beneficiaries of the settlement; the entities will receive more than $300 million combined.

More from the Sacramento Bee:

CalPERS said it will receive $301 million from S&P. CalSTRS said it will get $23 million.

“This money belongs to our members and will be put back to work to ensure their long-term retirement security,” said CalPERS Chief Executive Anne Stausboll in a prepared statement.

[…]

“S&P played a central role in the crisis that devastated our economy by giving AAA ratings to mortgage-backed securities that turned out to be little better than junk,” said Stephanie Yonekura, acting U.S. attorney for Los Angeles, in a prepared statement. “This historic settlement makes clear the consequences of putting corporate profits over honesty in the financial markets.”

[…]

With the S&P settlement, CalPERS said it has now recovered approximately $900 million in settlements from bad investments made during the bubble. The big pension fund already settled with Fitch but is continuing to press its suit against Moody’s.

The Justice Department statement on the settlement, which includes a list of the states receiving money, can be read here.

 

Photo by Stephen Curtin

CalSTRS Buys $470 Million New York City Office Building

skyscraper

As part of a joint venture with MHP Real Estate Service, CalSTRS has bought a 1.2 million square foot office property at 180 Maiden Lane in downtown New York City.

The building is the former home of Goldman Sachs’ offices.

From Investments and Pensions Europe:

The US pension fund has invested $260m in the asset – around 55% of the deal – through a joint venture with New York City-based MHP Real Estate Service.

The deal was carried out via CalSTRS’s separate account real estate manager Clarion Partners.

The property is currently 66% vacant, with around 800,000sqft left empty by the departure of Goldman Sachs.

CalSTRS said it had a full-scale capital and leasing plan for the next five years that would result in an increase in capitalisation for the property.

The pension fund classified the 1.2m sqft asset, at 180 Maiden Lane, as value-added.

Gary Rufrano, director and a member of the acquisitions group at Clarion, said there would be “many tenants who will be looking for space” in the area.

“Rental rates in the sub-market are 25-35% less than in Manhattan,” he said.

“There also is the fact that, in the down-town area, new amenities like shops, restaurants and housing options have been added to the sub-market over the past couple of years.”

MHP, which will oversee the day-to-day operations of the property, will carry out a $28m refurbishment of the property’s lobby and amenities.

The redevelopment includes the addition of a cafeteria and fitness centre for tenants.

CalSTRS manages $190 billion in assets.

 

Photo by Sarath Kuchi via Flickr CC License

CalSTRS Set To Receive Last $15 Million Payment from Congress

The CalSTRS Building
The CalSTRS Building

CalSTRS has received $315 million from the U.S. Congress since 1999.

In 2015, the pension fund will receive one final payment from Congress totaling $15.6 million.

What’s the purpose of the payment, and why are they stopping?

The Daily Journal News explains:

The California State Teachers’ Retirement System (CalSTRS) will receive its final $15.6 million payment of compensation from the 1997 sale of the Elk Hills Naval Petroleum Reserve as part of the $1.1 trillion budget appropriation bill passed by Congress Saturday.

[…]

The federal government began making payments to CalSTRS under a settlement agreement two years after the Elk Hills land was sold to Occidental Petroleum in 1997. The annual payments, each of which was subject to an annual Congressional appropriation, compensated CalSTRS for its interest in the state school lands that were part of the Elk Hills Reserve.

The petroleum reserve sits on 47,000 acres near Bakersfield, and the two tracts of state school lands in it were dedicated to California’s schools by the federal government upon statehood in 1850. It became a Naval Petroleum Reserve shortly before World War I, about the same time as California established the Teachers’ Retirement System in 1913.

[…]

“This final payment is welcome support to California’s retired educators, the oldest of whom greatly benefit from these proceeds, which support efforts to safeguard retiree pensions from the erosive effects of inflation,” said CalSTRS Chief Executive Officer Jack Ehnes. “State law directs any proceeds from state schools lands, on which the petroleum reserve sat, to support retired teachers’ pensions when they fall below 85 percent of their original purchasing power.”

CalSTRS manages $190 billion in assets.

 

Photo by Stephen Curtin

Improving CalSTRS Funding Comes at Cost for School Districts

The CalSTRS Building
The CalSTRS Building

California lawmakers acted earlier this year to improve the funding status of CalSTRS.

That means higher payments from school districts – and recent budget forecasts are forcing schools to examine how these payments will strain their budgets.

From the San Diego Union Tribune:

A state-mandated sched-ule for replenishing California’s cash-strapped teachers’ retirement fund means school districts will see their pension contributions triple by 2021 and remain high for decades, according to budget forecasts released this month by several local districts.

Administrators say they’re at a loss for how they’ll come up with the cash, which for some districts could be tens of millions per year. The forecasts come just six months after a legislative deal was struck by Sacramento lawmakers to recover billions of dollars for the California State Teachers’ Retirement System, or CalSTRS.

[…]

Administrators said that in the coming fiscal year, they may be faced with tough decisions to cut instructional programs, cut professional development or delay technology infrastructure improvements at the expense of paying their share of unfunded pension liabilities — totaling $74 billion statewide.

Officials in districts throughout California are talking about forming a coalition to explore ways to fix the teacher retirement system without cutting into their own school programs.

As the pension contributions grow, “the things you want and need for educational purposes will take a second seat to funding this retirement system, or paying for utility bills,” said Gary Hamels, assistant superintendent in charge of business services with San Marcos Unified School District.

“It’s going to hit the fan because you’ll have to make a decision — I have to pay this so you can’t buy that,” Hamels said. “We’ll have a situation where there’s demand for some academic improvement but this is where the money is going first.”

The business model to get CalSTRS on solid footing is based on economic assumptions that will force each of the area school districts to cough up tens of millions of additional dollars for decades to come, said Lora Duzyk, assistant superintendent in charge of business services for San Diego County’s Office of Education. Teachers also will see their CalSTRS contributions rise, though not as fast as school districts.

“I think you will hear moaning and gnashing of teeth from all kinds of people,” Duzyk said. “The money to pay for this are new costs that come right off the top of anything you get (from the state).”

Details on the repayment schedule are outlined in a school funding law passed in June by California’s legislature, and signed by Gov. Jerry Brown, a Democrat who marched into office in 2011 vowing to pull the state out of its budget crisis.

CalSTRS was 66.9 percent funded as of June 30, 2013.

 

Photo by Stephen Curtin

As Demand for Green Bonds Grows, So Does Desire for Transparency

windmills

There is growing demand for environmentally friendly investments, and as a result, “green bonds” have become an increasingly popular investment vehicle.

For proof, look no further than CalSTRS, which increased its purchases of “green bonds” by 300 percent in 2014.

But with increased popularity comes increased demands for transparency: what exactly qualifies as a “green” investment?

From Institutional Investor:

With green bonds’ rising prominence comes a need for a single set of clear and science-based criteria for what constitutes “green.” Nuclear power is low carbon, but some would balk at calling it green. And the coal industry would like investors to count fitting a coal-fired power plant with technology to reduce carbon emissions as a clean energy project, although fossil fuel consumption is hardly carbon neutral.

“When you get into the corporate space, you’re dealing with a large number of companies, and transparency is not always as good,” says Colin Purdie, head of global investment-grade credit at London-based asset management firm Aviva Investors.

None of this means Aviva wouldn’t invest in a bond because it doesn’t qualify as “green.” It just means the firm wouldn’t call it that. And therein lies the conundrum. A lot of these bonds would hit investors’ desks even without the green label. If the market is to grow into the large liquid powerhouse its proponents want, it needs a significant roster of corporate issuers to issue green bonds.

Also at issue are third-party verifications proving that issuers are spending funds on the environmentally friendly projects the bonds were designed to finance. This has begun to happen already. More than half of the green bonds issued in 2014 included an independent second opinion on their environmental credentials, from watchdogs such as the Center for International Climate and Environmental Research in Oslo and Vigeo in Paris, according to data from the Climate Bonds Initiative.

[…]

“I think the biggest concern right now is trying to grow the market and getting more issuers to issue bonds,” says Catherine DiSalvo, investment officer at the California State Teachers’ Retirement System. “We do support third-party verifications. The only problem is that it adds to the expense of issuing a green bond.”

Read the whole piece on green bonds here.

 

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