Return to search

Analysis: California’s Newsom to leverage state pension funds for climate in busy week for ESG in the US

Sustainable investing developments come thick and fast

They say a week’s a long time in politics but the last week or so has seen a series of events in the US that show how the world’s largest economy is – despite its senior management – developing a taste for ESG.

California Governor Gavin Newsom has signed a landmark directive to “leverage” the state’s $700bn public pension assets – including those of CalPERS and CalSTRS – to “drive investment toward carbon-neutral technologies”, rounding off a busy week for ESG in the US, which also saw a bill progress in the House of Representatives.

“Measure and manage climate risk across the state’s investment portfolio”

Newsom’s executive order directs California’s Department of Finance to create a Climate Investment Framework to “measure and manage climate risk across the state’s investment portfolio, with the goal of driving investment toward carbon-neutral and climate resilient technologies”.

That framework, the order states, should include a “proactive investment strategy” that “reflects the increased risks to the economy and physical environment due to climate change”.

It should also set a “timeline and criteria” to “shift investments to companies and industry sectors that have greater growth potential based on their focus of reducing carbon emissions and adapting to the impacts of climate change”.

Though it states that the framework should also align with the “fiduciary responsibilities” of the pension funds, which includes the $70bn University of California Retirement Program that has reportedly just announced it was divesting fossil fuels.

“In the face of the White House’s inaction on climate change, California is stepping up and leading the way,” said Newsom.

Earlier this month, the California State Treasurer Fiona Ma “broke ranks” with CalSTRS’ board, on which she sits, calling on the $241bn teachers’ pension plan to divest fossil fuels.The signing of the executive order came on the same day (September 20) that the US House Committee on Financial Services passed the ESG Disclosure Simplification Act. (HR 4329), with a vote of 31-22.

The ESG bill, which was introduced by Democratic Representative Juan Vargas and which must now pass through the House of Representatives, would compel public companies in the US to disclose information on their ESG practices.

It would also require the Securities and Exchange Commission (SEC) to establish a “permanent” sustainable finance advisory committee to advise and report to it on sustainable finance matters.

Last week, the SEC itself came under pressure from investors over proposed changes to rule 14-a8, the regulation that sets the rights shareholders have to raise concerns at the annual meetings of companies.

Some 129 investors representing $525bn in assets backed the letter drafted by US SIF [The Forum for Sustainable and Responsible Investment] expressing concerns about the proposed changes to thresholds for filing or resubmitting shareholder proposals announced in May.

Finally, staying in the US and ahead of Climate Week in New York, the Office of New York State Comptroller Thomas DiNapoli revealed the fruits of its engagements with companies on climate change.

Over the last proxy voting season, New York State filed shareholder proposals at 15 companies and reached agreements with 11 to improve their policies and practices.

These include with agreements with US oil and gas firms Concho Resources, Range Resources and Diamondback Energy, which have all agreed to assess and disclose the business impact of regulatory efforts to limit global warming under the terms of the Paris Agreement.

It also reached an agreement with Climate Action 100+ target firm Martin Marietta Materials. The US producer of aggregates for infrastructure has agreed to “assess, and publicly report on, the risks and opportunities available in the global transition to a lower carbon economy”.