Despite strong rhetoric from Gov. J.B. Pritzker and other top state officials demanding public pension funds divest more than $100 million in Russia-based assets, state lawmakers now say they won’t act until the Fall veto session.
A key legislative proposal to force the pullout in the wake of the Russian invasion of Ukraine died in a Senate committee awaiting a vote.
Senate President Don Harmon, D-Oak Park, declined to be interviewed for this report, but his staff suggested the Senate had too little time before the session closed on April 9. The House bill — which passed by a vote of 114-0 on April 5 — was never taken up in the Senate chamber.
Using pension investment decisions as a way to prompt social change has long been controversial. In the past, Illinois funds have divested from companies and funds related to Sudan, Iran and businesses that boycott Israel following direction from lawmakers.
The Illinois State Board of Investments creates a prohibited list of companies for the funds to consider. The most recent list does not contain companies or funds connected to the Russian invasion.
“How, as a society, should we think about our pension systems assets?” Amanda Kass, Associate Director of the Government Finance Research Center at the University of Illinois – Chicago, asked. “I also see this kind of scrutiny of investing in Russian assets as part of this larger movement.”
As economic sanctions against Russia for its invasion of Ukraine spread, state and local public pension plans are looking at selling off their Russian-related assets and some are already doing so.
Lawmakers in at least a dozen states are pressuring their pension funds to divest from Russian-related investments. Divestment isn’t likely to have much impact on the funds themselves as Russian-domiciled investments make up less than 1% of most (if not all) state portfolios. But collectively, it sends a message. For example, California’s CalPERS is the largest pension fund in the world and it alone holds nearly $1 billion in Russian assets.
However, it’s likely that at least some (if not all of) these funds will be selling at a loss. Here is a snapshot of what’s happening across the U.S.
As the Russian invasion of Ukraine continues, the AFSCME union in Illinois has asked the state board of investment to divest all holdings in assets tied to Russia.
A letter from the executive director of AFSCME Council 31 was sent to Illinois State Board of Investment Chairman Terrence Healy. Council 31 Executive Director Roberta Lynch referred to the invasion as a “genocidal slaughter of civilians.”
The state investment board governs investment policy for the State Employees Retirement System, as well as to other Illinois public pension funds that AFSCME members participate in.
A growing number of state governments are looking at dumping public pension fund investments they have in Russia in response to the country’s invasion of Ukraine.
California, Connecticut, Colorado and Illinois are among the states where officials are looking to do so.
While the divestment efforts are meant as a show of solidarity with Ukraine and a rebuke of Russia’s attack, the amount of money potentially affected compared to the overall size of the nation’s public pension assets is relatively small. And some of the actions would involve legislation and other measures that aren’t yet finalized.
Risks with investing in Russia that preceded the war, like corruption, and shortfalls with rule of law and transparency, mean that many pension managers would have been leery of investing heavily in the country in recent years.
“For most public pension funds in the U.S., Russia exposure is probably quite modest,” Ash Williams, former executive director and chief investment officer for Florida State Board of Administration, noted during an interview at an event the National Institute on Retirement Security held in Washington, D.C. on Tuesday.
The timing on Wednesday was impeccable. I was looking at the price of oil, which was up four percent that day and about to pass $100/barrel. Energy stocks were up over one percent despite a horrible day for the rest of the market.
So, with inflation raging, gasoline moving towards $4.00/gallon and Russia murdering Ukrainians with the help of American oil purchases, Chicagoans can take comfort knowing that the city will refuse to invest in oil and other fossil fuel production and thereby “will be sending a message that Chicago is permanently leaving dirty energy in the past and welcoming a clean energy future for generations to come.”
That’s from Chicago Treasurer Melissa Conyears-Ervin. She and members of the City Council, with Mayor Lori Lightfoot’s support, are pushing for an ordinance to mandate that the city divest its funds from fossil fuel companies, as Crain’s reported.
In fact Conyears-Ervin had already made oil and gas divestment office policy. The new ordinance would make the change permanent going forward. Her office has already removed $70 million in fossil fuel-associated bonds from the city’s portfolio, she says.
How wise has it been lately to be shunning fossil fuel investments? Here’s a chart comparing performance year-to-date of the S&P 500 to XLE, an ETF basket of mostly oil and gas companies. While the market in general is down some 10% the oil and gas stocks are up over 21%.
Oregon’s public pension fund, which manages tens of billions of dollars in retirement savings, appears to have privately given its blessing to a 2019 deal by an investment fund to acquire NSO Group, the controversial spyware company.
A source with close knowledge of the matter and emails seen by the Guardian suggest that a senior official at the pension fund signalled his strong support for the takeover of NSO as early as 2018, months before the deal was announced.
Last month, Oregon officials said they were “deeply disturbed” by reports that NSO Group “enabled widespread human rights violations”.
When CalPERS does something as obviously nonsensical as planning to dump $6 billion of its private equity holdings, nearly 13% of its $47.7 billon portfolio, when it just committed to increasing its private equity book from 8% to 13%, it’s a hard call: Incompetent? Corrupt? Addled by the latest fads (a subset of incompetent)?
And rest assured, the harder you look, the more it becomes apparent that this scheme is as hare-brained as it appears at the 30,000 foot level. But unlike another recent hare-brained private equity scheme, its “private equity new business model,” beneficiaries won’t have the good luck of having it collapse under its own contradictions. CalPERS has loudly announced that Jeffries & Co. will be handling these dispositions, so they will get done….at least in part. But the fact that CalPERS’ staff has gone ahead and merely informed the board, as opposed to getting its approval, is yet another proof of how the board has abdicated its oversight and control by granting unconscionably permissive “delegated authority” to staff.
The one bit of possible upside would not just be unintended, but the result of CalPERS acting in contradiction to its expressed objectives: that its allocation to private equity would undershoot its targets by an even bigger margin than otherwise.
California’s two biggest pension funds have invested a staggering $43 billion in fossil fuel companies, and their opposition to divesting from the industry — including fighting legislation that would have stopped them investing in firms involved with the controversial Dakota Access Pipeline (DAPL) — has cost retirees and taxpayers billions, research shows.
The findings hammer home the fact that the divestment movement isn’t just about protecting the planet from the worst effects of climate change. With the oil, gas, and coal industries all on the decline, pension funds’ refusal to divest from fossil fuels is also endangering the retirement savings of teachers, government employees, and other rank-and-file public workers who have paid into these funds.
While it is common knowledge that fossil fuel stocks have underperformed the broader stock market, large bank stocks have been lackluster as well — including the banks that helped finance DAPL.
If CalPERS and CalSTRS had not opposed the original DAPL divestment legislation, they could have instead put pressure on the companies involved not to move forward with the pipeline, and such efforts might have been enough to stop the project, given the pipeline project’s turbulent history.
Wall Street’s three biggest municipal-bond underwriters have seen business grind to a halt in Texas after the state blocked governments from working with banks that have curtailed gun-industry ties. In June, as Goldman Sachs Group Inc. was on the hunt for a new campus in Dallas, Republican Governor Greg Abbott took a shot at ESG initiatives by banning state investments in businesses that cut ties with oil and gas companies.
That’s not to mention the brawls over Covid vaccines and mask mandates, deadly Texas blackouts along the country’s most isolated power grid and new state laws that restrict voting and all but ban abortion. It’s all happening just as Wall Street’s shareholders push the industry to fight climate change, racism and the gender gap.
So far, most big banks haven’t taken public positions on the new abortion restrictions. They’re being cautious about requiring Covid-19 vaccinations for employees in places where officials have assailed mandates. But the new Texas gun law is running into both the industry’s efforts to advance social causes and its ability to work with the second-largest state for muni-bond issuance.
JPMorgan Chase & Co. — which has 25,500 Texas employees, its most in any state outside New York — has said it can’t bid on most business with public entities in Texas because of ambiguities around the law. The biggest U.S. bank is assessing its potential next steps, said a person with knowledge of the company’s thinking.
State treasurers in New Jersey and Arizona are divesting approximately $325 million in investments from consumer goods giant Unilever after subsidiary Ben & Jerry said it will stop selling its ice cream in Israeli-occupied territories.
In July, the company said in a statement that it was “inconsistent with our values for Ben & Jerry’s ice cream to be sold in the Occupied Palestinian Territory.” It said it has informed the licensee that manufacturers the ice cream in the region that it will not renew its license when it expires at the end of 2022. Despite leaving the Palestinian territories, Ben & Jerry’s said it will stay in Israel through a different arrangement that has not yet been determined.
A New Jersey law enacted in 2016 requires state pension funds to withdraw investments from any company that boycotts the goods, products, or businesses of Israel or companies operating in Israel or territories occupied by Israel. The law requires the state to create a blacklist of companies that boycott Israel.
A New Jersey state treasury official said on Wednesday it is set to divest $182 million in Unilever Plc stock and bonds held by its pension funds over the restriction of sales by the consumer giant’s Ben & Jerry’s ice cream brand in Israeli-occupied Palestinian territories.
It is the latest action by a U.S. state challenging Unilever over Ben & Jerry’s move in July to end a license for its ice cream to be sold in the Israeli-occupied West Bank. Ben & Jerry’s said selling its products there was “inconsistent with its values.”
New Jersey’s Division of Investment had said on Tuesday it made a preliminary determination that maintaining its investment in Unilever would be a breach of a state law barring it from investing in companies boycotting Israel. It gave the company 90 days to request a modification of the order.