California Public Pension Fund Shifts To Clean Energy
MELISSA BLOCK, HOST:
The California State Teachers Retirement System or CALSTRS, pledged more than double its investment in clean energy and technology. I spoke with the funds CEO Jack Ehnes, about a move that he says makes good investment sense.
JACK EHNES: We had brutal lessons from the recent great recession. I think that gave us all a deep reflection on the price of risk in our portfolios. And as we look forward - and we are a very long-term investor, we see climate change as a very, very critical issue that we have to take into consideration.
BLOCK: And when you think about climate change and how it might affect risk in your portfolio - give me a for instance of what you're thinking about there?
EHNES: Well clearly the economy is tilted toward carbon assets and for any investor our size those carbon assets are substantial component of the investments. So as you look out at the risks, let's take oil. Right now if the planet burned all the proven reserves that are out there for oil we would in fact exceed this two degree limit that everyone is concerned about when life will greatly change on this planet.
So with that as a benchmark, what we see in the oil industry is continued exploration - in fact, hundreds of billions of dollars being invested year after year. That take us well beyond what we call that carbon budget. What does that mean for an investment in a portfolio like ours? Well that probably will mean that ultimately the value of those companies, those assets, what we call stranded assets, will be devalued.
BLOCK: How much of the CALSTRS's portfolio is in fossil fuels right now?
EHNES: You know, I don't have a specific number for you today to give you that actually. We don't have - that's a hard calculation. What I would say for you is in our top 10 holdings, two of those top ten are in fact oil companies.
BLOCK: Which companies are those?
EHNES: That would be Exxon and Chevron.
BLOCK: Exxon and Chevron. And you've decided with CALSTRS not to do what a number of big investors, big endowments are now doing, which is divesting from fuels. Why not do that?
EHNES: Where we are is we started an engagement campaign last fall and we do believe rather than just selling a stock and basically someone else would buy that stock from you, that that will not take us necessarily to the change we're all looking for. We believe having a voice at the table is still an important part of this discussion.
BLOCK: You know, of course Mr. Ehnes that the argument with South African divestiture back in the age of Apartheid was constructive engagement just perpetuates a regime. That to really enact change you need to pull out and a lot of companies did.
EHNES: They did.
BLOCK: Doesn't that same lesson apply here?
EHNES: Well, I don't think this is necessarily as clear a case. This is a situation where we have energy companies, in some cases, that are in fact diversified in what they're doing and certainly will be applying their assets to explore renewables and other areas that speak well to climate change. So it's not a question where you can check the box and say sell, don't sell company by company entirely. So I think this requires a much more thoughtful approach in how we're going to work through these changes. And by applying our capital and investment pressure we hope to make changes with those key player strategies.
BLOCK: Let me ask you about that capital that you're going to be investing in clean energy. By my back of the envelope math here you've got a $180 billion portfolio. Your clean energy investments are going to be going from less than 1 percent of the portfolio to not quite 2 percent, five years from now. So it's doubling but as a percentage of the fund it's still tiny. Why not go bigger?
EHNES: Well, you know, it - it's not as simple as just saying wake up and let's take 10 percent of the portfolio and do X - Y - Z. We've had some success and also we've had some struggles in this area. And any investment strategy you really want to get grounded and make sure you're getting the investment returns you need for taking that risk. We're dealing with people's financial saving. This is a pension plan, this is not a high risk hedge fund. We have to be very careful when we're dealing with pension dollar that we're fiduciaries to the fund. But we believe by increasing this allocation by this amount that we are absolutely going down a thoughtful path that will bring opportunity to the fund that we haven't had before.
BLOCK: That's Jack Ehnes. He is the CEO of CALSTRS, the country's second largest public pension. Mr. Ehnes thanks.
EHNES: Thank you very much.
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