5 Questions Congress Ought to Have Requested the Local weather Cartel – What’s Going On With It?
By Matt Cole
My old employer, CalPERS, just suffered a humiliating defeat in its vote against Exxon's board. Its losing streak continued last week when the House Judiciary Committee questioned it about the “climate cartel” Climate Action 100+, which helps pension funds like CalPERS coordinate with asset managers and nonprofits to destroy fossil fuels. CalPERS is the brains and brawn of the group, founded it, and uses its $500 billion weight to pressure companies like Exxon to conform. Here are five questions I wish Congress had asked.
- Which investors argue that cutting fossil fuel production will increase Exxon shareholders' returns?
Interim CIO Dan Bienvenue began by claiming “Climate change is an existential risk” and answered questions about CalPERS's anti-fossil fuel actions by repeating “Climate change is real.” Obviously, CalPERS wants to portray any opposition to its activism as contradicting the science itself. But there is a big step between claiming that climate change is real and concluding that an oil company will make more money by producing less oil.
Scientists aren't saying climate change is an existential risk: One study says, “A century of climate change is about as bad as a year of economic growth.” Ending fossil fuel use would cost an energy-hungry world far more, especially as artificial intelligence guzzles electricity. The argument that Exxon needs to destroy its business to save it is political, not financial. Congress could debunk that if it pushed activists for hard evidence, rather than letting them have the scientific upper hand.
- Would CalPERS ever use its holdings in oil companies to artificially boost its investments in green energy?
If cutting oil and gas production doesn't make more money for the Exxons and Chevrons of the world, who does it benefit? The green energy industry, into which CalPERS recently pledged $100 billion in investments.
In early 2023, California passed SB 252, which required CalPERS to divest from fossil fuels. The pension fund refused, rightly noting that divesting for social goals would hurt its earnings, but reiterated its “strong commitment to reducing greenhouse gas emissions.” Six months later, it made its gigantic pledge for climate solutions.
The Judiciary Committee focused on Climate Action 100+'s war on fossil fuels, but that goes hand in hand with an attempt to artificially boost demand for wind and solar energy, which raises its own questions about fiduciary duty and anti-competitive behavior. I asked CalPERS's public relations director about this conflict of interest in a public call – no answer. Perhaps Congress would have better luck.
- Where will the $100 billion in new green investments come from?
The math is simple: CalPERS has $500 billion already invested in a range of assets that it presumably believes will maximize risk-adjusted returns. It doesn't have $100 billion to spare for green investments. Asset allocation is a zero-sum game: If 20 percent of the portfolio is invested in climate solutions, it has to get the money from somewhere else. Where, and at what cost? If divesting from an industry hurts portfolio returns, as CalPERS learned when it lost nearly $4 billion by divesting from the tobacco industry, shifting massive assets from some classes to a politically favored one amounts to the same thing.
- If CalPERS' DEI practices are about ensuring a diversity of perspectives, why does it only measure racial and gender diversity? Does CalPERS believe that different races think differently?
Bienvenue repeatedly refused to answer direct questions about whether CalPERS ever votes for or against board members based on the color of their skin. That would be, well, blatantly racist. That should have been a simple undertaking.
The committee can further delve into the question by focusing on the fact that the “key highlights” of CalPERS’ DEI investment report only highlight diversity in terms of race, gender, and “historically underrepresented groups.” It does not cite a single example of voting or commitment to improving diversity of “skills” or “competencies,” unless one defines those through the lens of race or gender.
Does CalPERS run its portfolio companies on the theory that men are from Mars and women are from Venus? Does it assume that whites and blacks have different skills and competencies? The company's beneficiaries have a right to know.
- If all these ESG investments are just about making money, why are your returns so low?
These beneficiaries, current and future retirees, are the ones who ultimately pay for all these lavish experiments in ESG investing. CalPERS has a habit of underperforming: Last year, it reported a return of 5.8 percent, in line with its five-year average. That's well below the roughly 7 percent it needs to achieve to meet its future obligations—on its current trajectory, it will only meet 72 percent of its retirees' funding needs.
That gap was the reality I had to brave every day as a portfolio manager at CalPERS. Since there was no urgency to close it, I had to leave to defend our capitalist system elsewhere. ESG investing promises vague gains in the distant future, but my friends and family whose pensions depend on CalPERS need better outcomes today, rather than betting on its loss-making ways.
Matt Cole is CEO of Strive Asset Management
This article was originally published by RealClearEnergy and made available through RealClearWire.
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