It’s crunch time for CalPERS and its role in the climate crisis

As the largest pension fund in North America with more than US$440 billion in assets, the California Public Employees’ Retirement System (CalPERS) holds a unique role as a founding member of the Net Zero Asset Owner’s Alliance (NZAOA) and Climate Action 100+. This places the pension fund in an influential position amongst other shareholders, due to its access to public equity, as well as the fact that CalPERS is exposed to some of the largest fossil fuel companies in the world. For example, CalPERS holds almost US$2.7 billion in Exxon, Chevron and Shell alone.

One of the fundamental principles of NZAOA and Climate Action 100+ is that active stewardship is critical to reducing greenhouse gas emissions in order to limit global warming to 1.5 degrees Celsius. However, this cornerstone of net-zero and climate action investor initiatives seems rarely to move from words to real world action. For example, ShareAction found that Climate Action 100+ members’ climate engagement strategies with the companies they invest in are inadequately articulated and the reporting of this kind of activity is inconsistent and vague.

Along similar lacklustre lines, in our report examining the disclosures, voting behaviour and fossil fuel bond investments of NZAOA members, we found that members are much more inclined to vote for disclosures at annual general meetings (AGMs) than more concrete steps to halt fossil fuel expansion. Specifically, CalPERS was a laggard in this 2022 report with a 55% “against” voting record on what we have defined as ambitious climate proposals. Notably, the pension fund voted against all climate resolutions at North American banks and major fossil fuel corporations such as BP, Equinor, and Shell.

CalPERS 2022 voting record is in step with its public praise of Shell’s inadequate climate promises in 2018 — the pension fund continues to demonstrate its unwillingness to demand science-based policies from the companies it invests in. When Shell announced new emissions intensity reduction targets, executives at CalPERS declared that “Shell is setting the pace” on climate action and other companies should take note. It has long been understood that emissions intensity can decrease while overall emissions increase. Therefore, CalPERS and other net-zero pledged investors must be using absolute emissions targets as the scientific standard by which to assess the climate plans of the companies in which they invest. Now, in 2023 — five years on from their celebratory joint press release with Shell — CalPERS must face up to the futility of attempting to engage with the world’s worst climate offenders that continue to develop new fossil fuel projects. It’s time for net-zero investors to exclude these companies from their investment portfolio.

By declaring lofty emissions reduction goals for the distant future, without absolute emission targets and concrete short- and mid-term actions, heavy-emitting companies, like Glencore, and the institutions that fund and insure them, like Citibank and Chubb, are misleading the public by crafting a false image of climate action. In actual fact these companies are responsible for pushing the world deeper into the climate crisis. Moreover, influential investors like CalPERS are complicit in this when they do not play an active stewardship role, vote against science-based climate proposals at AGMs, and issue statements applauding company greenwash.

It’s time for CalPERS to step their game up, push beyond lacklustre promises and begin meaningful engagement with their investment portfolios to actually tackle the climate crisis, starting with voting for shareholder climate resolutions.

While shareholders gather this quarter in North America and later in the year across the rest of the world to vote on climate proposals at AGMs, CalPERS has the opportunity to show the companies it invests in, its peers in the investment industry, and the pension holders it represents how it translates a net-zero pledge into tangible shareholder action.

CalPERS must exercise this leadership by supporting shareholder climate resolutions at companies such as Citibank, Engie, Glencore, Travelers, SMBC, and Mitsubishi. Furthermore, by pre-declaring support for such resolutions, CalPERS can publicly communicate its position on net-zero action and encourage its industry peers to follow in its footsteps.

Beyond voting at AGMs, the mega-pension fund should actively work with the companies it invests in to develop comprehensive decarbonization strategies and adhere to Indigenous people’s Free, Prior, and Informed Consent. CalPERS should also begin a phase out of their holdings of fossil fuel companies that continue to develop new fossil fuel projects.

How the California pension fund decides to vote this year is an important test of climate leadership, and its actions throughout the year will prove its commitment to being a net-zero investor.