In summary
Should California pension funds invest in fossil fuels? How about Tesla and Palantir? Or companies with anti-union records? Those debates are playing out at CalPERS and CalSTRS.
California’s two biggest public pension funds have more money than ever — and they’re hearing from more people than ever on how those assets should be used to change the world.
The boards at the California Public Employees’ Retirement System and the California State Teachers’ Retirement System are facing campaigns from groups that want them to pull money out of companies associated with the Trump administration, scale back investments in fossil fuels and break with private equity firms over their labor records.
The list includes electric car maker Tesla, surveillance company Palantir, private companies that operate immigrant detention centers, ExxonMobil, Chevron and private equity firm Apollo Global Management.
To some extent, divestment campaigns are routine business at CalPERS and CalSTRS, which hold assets worth a combined $1 trillion and are headquartered in the capital of a deep blue state.
But the combination of Trump-era politics and a concerted push by labor in the Legislature to force the pension funds to open the books on private equity holdings is attracting the focus of a more diverse mix of advocates.
“It’s politics,” said Richard Costigan, a Republican who served on the CalPERS board from 2011 to 2019 as an appointee of Democratic Gov. Jerry Brown. “When you look at Palantir and Tesla, it’s driven by politics. Seriously, why would you not invest in Palantir?”
The rebuttal: Despite their earnings and stock value today, the companies affiliated with the Trump administration’s immigration enforcement program are taking on serious reputational risk that could backfire on the funds. Separately, they say putting money into fossil fuel companies poses hazards both for the environment and for pension systems banking on long-term investments.
The pension funds “should be aligning their investments with the values of their state, the values of their members, and the long-term interests of their members,” said Richard Brooks, the climate finance program director at the advocacy organization Stand.Earth.
He recently released a study tallying CalPERS and CalSTRS investments in companies that participate in the Trump administration immigration sweeps, such as Palantir and private prison companies CoreCivic and GeoGroup.
“I see a disconnect right now,” he said.
Staff at CalPERS and CalSTRS oppose divestment and they consistently fight legislation that would tie their hands. Both systems are underfunded and owe tens of billions more than their assets, a crisis that in 2012 led the Legislature and then-Gov. Jerry Brown to pass a law mandating less generous pension benefits for employees hired after that year.
But CalPERS and CalSTRS have pulled money out of industries in the past. CalPERS divested from firearms in 2013 and from tobacco in 2016. They’re also barred by state law from investing in coal as well as in businesses connected to Iran.
They’re governed by boards of directors that are made up of public employee union leaders, appointees of state Democratic leaders and the state controller and state treasurer, both of whom are Democrats.
In short, they’re people who are aligned politically with the mostly liberal groups that are pressing them to change policies.
That doesn’t mean it’s an easy call for them to withdraw investments from any industry.
“It’s so tricky. How do you divest from all of that is anti-union? The quick answer is you can’t,” said Kenny Waggoner of Ducenta Squared Asset Management, who advises union benefit plans.
He gave an example of a real estate investment trust with stakes in large warehouses — the kind operated by Amazon. Members might question an investment in a company with a reputation for fighting unionization, but the rent from the warehouse might be the best return available to support their pensions.
Here’s a look at the main friction points before CalPERS and CalSTRS.
Tesla volatility
A long–running campaign to persuade CalPERS to break with electric car maker Tesla peaked in September when the pension board commissioned a risk assessment on whether it should own stock in the electric car maker.
Tesla delivered returns for CalPERS over time. It’s considered one of the “magnificent seven” tech stocks that drive markets today.
The company’s critics characterize it as a volatile risk under Trump ally Elon Musk, pointing to Tesla’s drop in sales last year along with regulatory challenges it’s facing with its self-driving cars. CalPERS as a Tesla shareholder has consistently voted against Musk’s pay packages.
“Tesla’s past gains don’t erase the present picture,” CalPERS board Mulissa Willette said at the meeting where she requested the risk analysis.
In March, the board held a closed-door discussion on “owning Tesla”. Afterward, a board member said in open session that CalPERS would not sell off its holdings in the company.
“While we are unable to provide specifics regarding the discussion, we can note that the company has been one of the top 10 drivers of performance in our global equity portfolio and is a key holding for our climate transition portfolio,” CalPERS board member Kevin Palkki said. “After our closed session discussion, we collectively agreed to make no changes at this time.”
Immigration and surveillance
Palantir, a California company that supported the U.S. military during the wars in Iraq and Afghanistan, became a focus of public pension divestment campaigns during Israel’s assault on Gaza because of its work with the Israeli Ministry of Defense. The Berkeley Unified School District, for example, in September passed a resolution calling on CalSTRS to divest from the company.
Now Palantir is facing more scrutiny because of its work with the Department of Homeland Security, which is carrying out the Trump administration’s immigration crackdown.
The climate advocacy organization Stand.Earth called attention to CalPERS’ and CalSTRS’ holdings in Palantir and six other companies working with Homeland Security in a study it published last month highlighting public pension investments in companies that Stand.Earth described as enabling “repression and violence”.
Fossil fuels
California lawmakers were close to forcing CalPERS and CalSTRS to divest from fossil fuels three years ago when a bill to do that passed the state Senate. But it didn’t become law.
Both of the big pension funds opposed the bill, although one of their board members, state Treasurer Fiona Ma, supported it.
Learn more about legislators mentioned in this story.
Advocates and public employees who don’t want their pensions to support industries that drive climate change have pressed the funds to divest from oil and gas for a decade.
California’s third largest public pension fund, the University of California Retirement Plan, divested from fossil fuels in 2020. At the time, its leaders cited financial reasons, finding that fossil fuels have a poor long-term outlook.
The UC Retirement Plan is in better shape than CalPERS and CalSTRS. The UC plan’s assets are worth 92% of what it owes over time to its beneficiaries, while CalPERS’ and CalSTRS’ portfolios are worth about 80% of what they owe.
Labor’s attention on private equity
Two bills in the Legislature this spring pit unions against unions in questions over how CalPERS and CalSTRS should do business.
One would compel the funds to release more information about their private equity holdings, a change that CalPERS staff contends would so severely undermine its ability to invest with those firms that it would have to increase its charges to employers by more than $6.1 billion a year.
The measure by Democratic Sen. Dave Cortese of San Jose has support from unions that represent grocery store workers and hotel employees, none of whom have pensions in CalPERS or CalSTRS. Public sectors have not yet taken a stand on the proposal
The second one, carried by Democratic Assemblymember Robert Garcia, would direct the funds to commission a study on their labor standards for construction and development projects. The State Building and Construction Trades Council has urged CalPERS and CalSTRS to heighten their existing labor standards and is supporting the bill.
The California School Employees Association, whose members have CalPERS pensions, is on the record opposing the trades’ bill.
“CSEA’s position is that investment and divestment decisions regarding CalPERS funds should be made by the CalPERS Board and its investment professionals, not by the Legislature,” Aaron Latham, the union’s spokesperson, said in a written statement.
CalMatters reporter Michael Zinshteyn contributed to this story.
