CalPERS CEO Marcie Frost affirmed the $522.4 billion pension fund’s commitment to environmental, social and governance investing in the face of expected federal policy changes stemming from the recent election.

Election results make clear that change is coming, Frost told the board of the California Public Employees’ Retirement System, Sacramento, at its Nov. 20 meeting.

“We expect the year ahead will include new voices and viewpoints on several issues, including climate- focused investing, corporate governance and healthcare policy,” Frost said. “We welcome those conversations as we seek to remind elected leaders that everything we do is with an eye toward risk and reward for the long term.”

And she said, “we believe in defined benefit retirement plans.”

On climate, Frost said CalPERS will continue to press the companies in which it invests “to provide clear, consistent data on their climate impacts” and will continue to support international efforts to do the same.

Later in the same meeting, Dan Crowley, partner at law firm K & L Gates, which advises pension officials on federal proposals, said that many of these issues will be on the table during the Trump administration.

For example, President-elect Donald Trump is “committed to a pro-economic agenda including ‘drill baby drill’ to lower energy costs,” Crowley said.

Noting that CalPERS has been a leader on ESG policy for more than a decade, he said that the new Congress “is going to be focused on undoing (President Joe) Biden’s legacy items of social justice and climate change.

“I think at the end of the day there will be a focus on proxy voting that we are going to have to engage in,” he said.

ESG in question

Crowley said that there is a question of what will happen with the European Union’s climate disclosure directives in the wake of almost certainty that the Security and Exchange Commission’s climate disclosure rule will not take effect.

“It will either be ruled unconstitutional in the courts or Congress will take steps to rescind it,” Crowley said.

California’s climate disclosure laws will also most likely meet the same fate as the Trump administration is expected to try to pre-empt the laws as inconsistent with a federal capital market system, he said.

At the same time, a razor-thin Republican majority in the House of Representatives will most likely require most new legislation to be bipartisan with the exception of tax reform, which could be passed by reconciliation, Crowley said. The expiring 2017 Trump tax cuts legislation was passed by reconciliation, he said. Reconciliation is a way to pass revenue and spending legislation with a simple majority in the Senate.

Indeed, during CalPERS sustainable investments program review at its Nov. 18 investment committee meeting, Peter Cashion, managing investment director, sustainable investing, said pension officials would be open to investing outside the U.S. should Trump administration and/or Republican policies result in fewer investment opportunities in the U.S.

Last year, CalPERS committed to investing $100 billion in climate solutions by 2030. Pension fund officials committed $2.6 billion to private equity and infrastructure climate solution investments from November 2023 to June 2024.

“We need to be very aware and attentive to the Republican agenda,” Cashion said.

That agenda will favor oil and gas as well as target for elimination or reduction green subsidies and incentives, climate disclosure and air-quality standards. This agenda is a “headwind for some low-carbon industries in the U.S.,” Cashion said.

However, CalPERS climate solutions portfolio, made up of public and private assets valued at $50 billion as of July 15, is resilient because CalPERS underwrites investments without taking green subsidies into account, and has made most of its investments (80%) in red (Republican) or purple (swing states), he said.

Cashion said there would be less incentive to dismantle climate solution investments in red or purple states.

“If we determine that they’re (investment opportunities) lower in the U.S., we’ll be open to looking into more non-U.S. markets,” Cashion said.

And the new energy policies could make oil and gas investments more attractive, he said.

When asked by CalPERS Board President Theresa Taylor whether this would mean CalPERS investing more in oil and gas, Cashion said, “I’m not advocating today that we do more of it (oil and gas). We just need to assess it.

Cashion said that CalPERS invests in energy transition assets to reduce the intensity of their emissions of carbons and other pollutants.

“And even with oil and gas, they’ve also been leaders when it comes to carbon capture, reducing methane and we’re working to support that as well,” he said.

To that Taylor responded: “We’ll have another discussion in closed session because I’m not clear that carbon capture is the best use of our funds.”

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