The California Public Employees’ Retirement System (CalPERS) recently opposed legislation that would require divestment from fossil fuel companies despite the agency’s support of the environmental, social, and corporate governance movement, also known as ESG.
A bill submitted earlier this year by three California Democrats asserts that “efforts to obstruct climate stabilization policies” from fossil fuel companies are “incompatible” with the state’s climate policies. Board members for CalPERS voted to recommend against the passage of the bill, saying divestment would “create a ripple effect on our ability to produce the investment returns needed to fulfill our members’ retirement promises” and have little impact on fossil fuel companies’ operations, thereby doing “nothing to reduce greenhouse emissions.”
Despite the opposition to fossil fuel divestment, a hallmark of ESG investment proposals, CalPERS was one of the entities which prompted the Securities and Exchange Commission to consider rules mandating that companies include climate-related information, such as carbon emissions levels and climate-related risks, in their financial statements and annual reports.
Skeptics of the ESG movement assert that the investment philosophy intermixes political and social causes favored by executives, such as reducing carbon emissions or diversifying company leadership, in a manner that compromises or distracts from profitability. CalPERS currently maintains an ESG framework to “assess potential risks to our investments,” divested from thermal coal five years ago, and more recently joined the United Nations Net Zero Asset Owner Alliance to mitigate rises in global temperatures by 2050.
1792 Exchange President Paul Fitzpatrick said in an interview with The Daily Wire that ESG is “the marriage of Wall Street’s desire to make more money and the Left’s desire to push unpopular policy through corporations.” He noted that climate objectives, and social agendas, such as diversity efforts and support of LGBTQ-related causes, do not affect “whether a company produces a good product or is well-governed.”
Fitzpatrick also noted the lackluster performance of ESG funds last year as technology firms, which ESG managers tend to favor because of their emphasis on corporate social responsibility, suffered in the stock market, while energy companies, which ESG managers tend to dislike because of carbon emissions associated with the sector, witnessed outsized returns. CalPERS witnessed a 6.1% loss last year, falling below the median of other state retirement programs.
“Because of ESG funds’ bias against fossil fuels and support of radical corporate goals to get portfolios to net zero greenhouse emissions by 2050, these funds underweight energy stocks and overweight tech. For individuals who are retired or retiring soon, that has a big impact on their portfolios and retirement security,” Fitzpatrick continued. “Especially going into a recession, it’s not wise to divest from fossil fuels and lower returns for retirees.”
CalPERS is one of several major investment entities to admit in recent months that fossil fuel divestment is harmful to returns: Officials from the Government Pension Fund Global in Norway, one of the nation’s two sovereign wealth funds, acknowledged they had missed the chance to benefit from outsized returns in the energy sector last year, while executives from Harvard Management Company, which manages the elite university’s endowment, disclosed that its losses were attributable to fossil fuel divestment efforts even as the organization remains “proud to be deeply engaged in the issue of sustainability.”