CalPERS rebuts criticism of its $6.5bn coal holdings as “baffling”

Pension giant locks horns with NGO that says some of its coal investments could violate state law

CalPERS has $6.5bn invested in coal, millions of which potentially violates both state law and the fund’s own divestment policies, a new NGO report has alleged – a claim the largest US pension fund has dismissed as “misleading” and “baffling”.

Published this week, the report from Fossil Free California, titled CalPERS Continues to Invest In Coal, analysed the most recent data on coal holdings for the largest US state pension fund. 

In CalPERS’ retaliation, which is on its website, CEO Marcie Frost outlines the fund’s climate engagement, advocacy and risk integration work, knocking back Fossil Free’s claim that it “has done nothing to improve” since 2017 as “frankly, baffling”. 

In 2017, CalPERS divested $14.7m from 14 coal companies – a requirement by SB185, the Public Divestiture of Thermal Coal Companies Act, which directed CalPERS and state teachers’ retirement fund CalSTRS to divest from thermal coal companies by July 2017.

The law prohibited a small fraction of coal investments – companies that generate 50% or more of their revenue from the mining of thermal coal – and CalPERS revealed it owned shares in 17 such companies, divesting 14.  

According to Fossil Free, the remaining three – Exxaro, Banpu and Adaro – were not divested because the companies made what the report called “ill-defined, open-ended claims” to be shifting to cleaner energy. According to the report, CalPERS’ $11.1m holdings in these companies “opens up the question of whether CalPERS has fully complied with SB185”.

It notes that Exxaro, in which CalPERS has more than doubled its investment between 2018 and 2019, says its strategic vision is to use its “primary commodity – coal… to fuel our future”.

However, Frost said the report “does not fully reflect the review process for the three companies that remain in our investment index, based on discussions with the companies that they were moving away from coal to cleaner energy”.

It said investments in the three companies would be revisited in 2021 as part of a five-year review.

Using criteria from the coal industry database Global Coal Exit List (GCEL) – which includes coal mining companies, coal-powered utilities, and other companies with coal operations – the NGO report said CalPERS’ 2019 portfolio had $6.5bn exposure to coal, an increase of $1.5bn from 2018.

Increasing shares in Xcel Energy, American Electric Power, Enel, WEC Energy Group and Southern Company – all utilities companies with coal power plants – accounts for much of the increase in 2019 over 2018, the report said. Southern Company and Enel are the first and fifth largest emitters, respectively, of Scope 1 and 2 emissions for companies in which CalPERS is invested.

CalPERS’ pushed back, saying these companies “do not technically qualify as ‘thermal coal companies’ by SB 185 criteria”. 

Frost highlighted the fund’s climate strategy, and wrote: “As a global and universal asset owner we have nowhere to hide from climate change and need to tackle global warming emissions at the source… While one can appreciate the research and effort that went into this report, it clearly lacks the information and context that would provide the reader all the facts.”