Engagement by three coal companies staves off Calpers divestment

Californian pension fund divested from most thermal coal holdings following law change

Three coal companies have avoided divestment from Calpers by convincing the Californian pension fund they planned to make significant changes to their business models, Corporate Secretary sister publication IR Magazine reports.

Calpers this week announced it had divested from 14 thermal coal companies, which mine coal for electricity generation, to meet the requirements of a law passed in 2015 aimed at reducing California’s reliance on carbon.

The law, which applies to both Calpers and CalSTRS, required the pension funds to divest from coal holdings by July 1, 2017 unless the companies in question had plans to increase their focus on clean energy sources.

In a report describing its adherence with the law, Calpers reveals that three companies – Banpu of Thailand, Exxaro Resources of South Africa and PT Adaro Energy of Indonesia – avoided divestment following engagement with the fund.

The companies offered different explanations for how their businesses are changing but all spoke of long-term plans to use more renewable energy sources. The report contains correspondence between the pension fund and the companies addressing these issues, including letters sent by the IR team.

‘In making a determination to liquidate investments, the board shall constructively engage with a thermal coal company to establish whether the company is transitioning its business model to adapt to clean energy generation, such as through a decrease in its reliance on thermal coal as a revenue source,’ Calpers officials write in the report.

The divested companies ‘failed to indicate applicable business plan adaptations, or failed to respond to Calpers’ engagement efforts,’ the report adds.

Calpers, which manages more than $300 billion in assets, has often spoken against divestment, arguing that investors should remain holders to exert influence over corporate policy. Earlier this year, staff released a recommendation saying they didn’t agree with proposed legislation that would force the pension fund to divest from companies involved in the controversial Dakota Access Pipeline.

‘There is considerable evidence that divesting is an ineffective strategy for achieving social or political goals, since the consequence is generally a mere transfer of ownership of divested assets from one investor to another,’ the statement noted.

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