On January 25, the State Senate Transportation and Energy Committee heard testimony on a bill that would accelerate the state’s attempt to radically reduce so-called greenhouse gas emissions, setting a goal of completely eliminating them by 2050.
In addition to directing state money to wastewater thermal energy, greenhouse gas sequestration, and electric lawnmowers, Senate Bill 23-016 would dragoon the state’s public pensions into service of the climate change agenda, fiduciary responsibility to the pensioners be damned.
The bill would require Colorado’s Public Employee Retirement Account (PERA) to “to adopt proxy voting procedures that ensure that the board’s voting decisions align with, and are supportive of, the statewide greenhouse gas (GHG) emission reduction goals.” It would also require PERA to add a climate change portion to its annual Stewardship Report, describing alleged climate threats to its portfolio, and how PERA assesses and deals with those threats in its portfolio.
This would require PERA to examine all of its proxy votes and make sure that they aligned with climate change orthodoxy. Since there is no other legal requirement concerning proxy votes, that priority is set to take precedence over every other consideration in proxy voting. PERA itself estimates that this would require another 2½ full-time employees and cost roughly $430,000 a year. More than that, PERA has virtually no expertise evaluating proxy votes according to climate change criteria, leaving it at the mercy of activist groups that make recommendations on them.
Democrat State Senator Faith Winter has stated explicitly that she wants to, in her words, move to align Colorado’s pension investment policies with the state’s adopted environmental policies. In other words, she sees PERA less as an independent investment operation with fiduciary responsibilities to its members and more as yet another vehicle for imposing climate change orthodoxy on Colorado and the country.
She was careful to point out that the bill is about proxy voting, not divestment. But the purpose of proxy voting is to make currently “non-green” companies look like “green” companies, and to push things like oil and gas out of business altogether, with inevitable effects on investment returns. The amendments to the Stewardship Statement clearly indicate that that could be imposed somewhere down the line, and her comments leave little room for doubt that she would like to push the fund in that direction.
Boston College’s Center for Retirement Research recently looked at so-called ESG investing, which stands for Environment, Social, and Governance, and found that it costs investors up to 0.9% per year in returns. Even assuming a loss of only half that, with $66 billion of assets under management, that could cost PERA up to $330 million a year in returns.
By way of comparison, the state legislature currently funds PERA out of the general fund to the tune of $225 million a year. It suspended that payment during 2020 due to concerns over the economic effects of the COVID shutdowns. The subcommittee charged with PERA’s oversight later decided that the potential damage to PERA’s position was so significant that it not only recommended that the legislature make up that payment, it also recommended that it make good the missed returns on that investment during 2021.
The proposed amendments to the Stewardship Report are equally troubling, for two reasons. First, they call for estimates that are almost impossible to make with any accuracy. PERA will no doubt try its hardest, but there will be considerable political pressure from the same politicians pushing this bill in the first place to use estimates and predictions from the same activist groups who rate proxy votes. Second, its inexorable logic will lead to divestment, whether those politicians admit it or not, in order to limit vulnerability to an increasingly hostile regulatory environment.
Moreover, divestment would have unintended and perverse consequences. During a recent Joint Finance Committee hearing, it was noted that about 5% of PERA’s money is in oil & gas. But those companies turn out to be among the most innovative when it comes to green patents. Turning away from them would have the immediate effect of denying PERA returns from that innovation, and the long-term effect of dampening it. Retirees would regret the former, while green activists and legislators, should beware the latter.
To PERA’s credit, it has opposed this violation of its fiduciary responsibility, unlike other public pension funds around the country. CEO Ron Baker stated flatly – and quite correctly – that PERA is simply an inappropriate vehicle for enforcing these kinds of policy decisions.
Joshua Sharf is a senior fellow in fiscal policy at the Independence Institute, a free market think tank in Denver.
