The CalPERS Runoff Election: Margaret Brown & Michael Bilbreyʻs Responses

Todayʻs post includes responses from the two candidates - Margaret Brown & Michael Bilbrey - competing in  CalPERS runoff election, which begins on November 11 and concludes in early December.

The purpose of this post is to provide fuller information from each of the candidates for the many thousands of CalPERS members who voted for me in the recent election and must now decide between the two remaining candidates in the runoff election. For more background on the questions I have posed to each of the candidates, please see my previously posted message: Who Will You Endorse ?

From Margaret Brown:

As a so-called “permanent investor” that owns virtually all publicly-traded stocks, CalPERS cannot ignore the foreseeable consequences of business decisions that companies within the portfolia make, even if those consequences will not occur for many years. This reality is at odds with the timeframe of the vast majority of investors, where the average holding time of U.S. stocks is measured in seconds, and even a mutual fund with relatively low turnover trades out of almost all of its positions within a couple of years. 

This prevailing short-term mindset among investors gives rise to a false impression that long-term economic issues are somehow inappropriate as a proper investment consideration, when logic dictates that they clearly are relevant.  This reasoning clearly applies to situations where CalPERS portfolio companies have under-recognized, long-term liabilities that threaten the well-being and even survival of the companies.  This situation has occurred numerous times during CalPERS’ history.

For example, companies involved in the manufacture or use of asbestos products virtually all went bankrupt when the negative health impact of asbestos exposure became well-understood.  Similarly, many other companies over the years have experienced bankruptcy due to other types of environmental liabilities. More recently, tobacco companies avoided bankruptcy only because the federal government stepped in to impose a master settlement that capped liabilities resulting from the health impact of smoking.

With hindsight, it is easy to see that it would have been not only contrary to the interests of justice but unwise from the perspective of a properly functioning economy, upon which the welfare of CalPERS depends, for CalPERS to have sought to shield asbestos companies, polluters, or tobacco companies from the financial consequences of the business decisions they made. This is true even though at the time, the companies’ business decisions may have been made in good faith (for example, asbestos was perceived as a life-saving fire retardant for decades before its pulmonary dangers were understood).

Further, it is clear that economic efficiency and the interests of justice are aligned in wanting to see companies’ under-recognized, long-term liabilities appropriately recognized. As such, CalPERS should continuously seek a constructive role across its portfolio in identifying and calling out publicly for the recognition of such liabilities. If CalPERS' activities contribute at the margin to the earlier bankruptcy of CalPERS portfolio companies, then so be it. Presumably, the truth would come out eventually in any event, and it is better from the perspective of efficiency and justice that the truth be recognized sooner than later.

The statement I am making is purposely general because I am trying to demonstrate that the principles that I would apply to fossil fuel companies are defensible, to a large degree, because they are general and not motivated by sentiment against companies involved in extracting or burning fossil fuels.  Moreover, these principles I am offering are fundamentally economic and are, at their core, simply a statement of the accounting identity that companies and investors must recognize reasonably foreseeable liabilities. As such, there is absolutely no conflict between fiduciary duty and working in ways that might, at the margin, hasten the bankruptcy of fossil fuel companies. CalPERS didn’t create the fossil fuel liabilities that stand to swamp the value of myriad hydrocarbon extraction companies—those liabilities already exist. 

Even though these principles are stated in a general way, I do want to acknowledge the special urgency of the climate change liabilities borne by various companies in the CalPERS portfolio. These liabilities are a threat to human civilization, which places them in a category that is distinct from any other financial liabilities ever experienced by investors. As such, CalPERS must not be silent and cannot afford to let an atmosphere of silence prevail.  CalPERS needs to support and participate in the relevant scientific, policy and investor forums searching for answers.  In particular it needs to strongly support those who are fighting to minimize sea level rises, since CalPERS owns billions of dollars of property along coastlines worldwide (and in California) that stands to be under water within a century.

Please feel free to contact me if you have any additional questions. 

Margaret




From Michael Bilbrey:

1. Many Americans have learned in legal filings submitted by cities and states that various petroleum corporations have engaged in an    organized campaign to deceive the public about the dangers associated with fossil fuels. As a prospective member of the CalPERS Board, what do you believe you can do to address the issue of climate change with respect to the negative consequences identified in authoritative scientific statements (e.g., The 5th Assessment of the Intergovernmental Panel on Climate Change)?

As a CalPERS board member I have access to academic research on the topic of climate change and this is an area where I have keenly focused.   I have been able to bring this research and data to the creation of the 5 year strategic plan and specifically the Climate 100 project where we are focusing our engagement activities on the top 100 carbon emitters in our portfolio.  We have 1. Many Americans have learned in legal filings submitted by cities and states that various petroleum corporations have engaged in an organized campaign to deceive the public about the dangers associated with fossil fuels. As a prospective member of the CalPERS Board, what do you believe you can do to address the issue of climate change with respect to the negative consequences identified in authoritative scientific statements (e.g., The 5th Assessment of the Intergovernmental Panel on Climate Change)?

As a CalPERS board member I have access to academic research on the topic of climate change and this is an area where I have keenly focused.   I have been able to bring this research and date to the creation of the 5 year strategic plan and specifically the Climate 100 project where we are focusing our engagement activities on the top 100 carbon emitters in our portfolio.  We have asked other institutional investors to join us in this engagement and released our findings at the recent PRI (Principles for Responsible Investing).  I have also worked to successfully place a climate scientist on the Exxon board through our successful engagement efforts and our ability to have a database of corporate directors, also known as 3-D. 

2. Some have argued that there is a conflict between meeting your fiduciary duty as a CalPERS Board member and your responsibility to protect CalPERS members and the broader public from the burning of fossil fuels. As a prospective member of the Board, what do you believe is the best course of action to reconcile such conflicts?

I have a fiduciary responsibility to provide benefits to the members of CalPERS.   In fulfilling this important responsibility, I consider a number of factors, including climate risk.  Our investment decisions consider the risks related to fossil fuels and

we have invested in a number of climate-friendly deals such as wind and solar farms to transition to clean energy.  These are deals that both meet our fiduciary responsibility to meet our return target and our ESG priorities.  I don't believe these priorities are mutually exclusive.  I can meet my fiduciary responsibilities as a trustee while also considering the risks of climate change. 

As you may be aware, there are a growing number of California cities filing law suits against major fossil fuel corporations seeking to address the damages already affecting numerous Californians as well as even greater future harms, including negative impacts affecting many, if not all CalPERS members. What course of action do you recommend CalPERS adopt in order to address the potentially massive liabilities facing fossil fuel corporations?

CalPERS has an important voice and one we use to engage with companies where we invest.  We believe that engagement is the most important strategy considering CalPERS size, 340 billion in AUM.  Not all institutional investors have the size and magnitude of the CalPERS fund so we are uniquely positioned to use our voice and influence to change corporate behavior.  We have had numerous successes and are committed to more as we implement our 5 year ESG plan.  You'll notice that I ask several questions during our board meetings on the progress our investment staff are making in implementing the plan and more importantly the changes in corporate behavior that are necessary to fully mitigate the risks associate with climate change.  I am personally motivated to create the right balance of maximizing our investment returns with a prudent level of risk.

In the event of opposition or delays from other CalPERS Board members and/or staff to act decisively to prevent the damaging consequences of fossil fuels, how might you support the urgent calls by scientists, public health experts and university faculty from around the world for expedited actions to dramatically reduce fossil fuel emissions while expanding investments in alternative energy?

CalPERS is a leader in its investments in alternative energy, including wind and solar farms.  I am committed to ensuring we have a world where future generations can thrive and that starts with this generation.  I have pushed to have more focus on ESG strategies and for the staff to report out on a regular basis our progress in implementing those

strategies.  I'm proud of the work that has happened to date but will not settle as well as continue to push for more attention and focus. I am proud to have attended the PRI in the past to learn firsthand the work they are doing as well as our colleagues in many other funds globally.  I have also worked to successfully place a climate scientist on the Exxon board through our successful engagement efforts and our ability to have a database of corporate directors, also known as 3-D. 

2. Some have argued that there is a conflict between meeting your fiduciary duty as a CalPERS Board member and your responsibility to protect CalPERS members and the broader public from the burning of fossil fuels. As a prospective member of the Board, what do you believe is the best course of action to reconcile such conflicts?

I have a fiduciary responsibility to provide the promised benefits to the members of CalPERS.   In fulfilling this important responsibility, I consider a number of factors, including climate risk.  Our investment decisions consider the risks related to fossil fuels and we have invested in a number of climate-friendly deals such as wind and solar farms to transition to clean energy.  These are deals that both meet our fiduciary responsibility to meet our return target and our ESG priorities.  I don't believe these priorities are mutually exclusive.  I can meet my fiduciary responsibilities as a trustee while also considering the risks of climate change. 

3.  As you may be aware, there are a growing number of California cities filing law suits against major fossil fuel corporations seeking to address the damages already affecting numerous Californians as well as even greater future harms, including negative impacts affecting many, if not all CalPERS members. What course of action do you recommend CalPERS adopt in order to address the potentially massive liabilities facing fossil fuel corporations?

CalPERS has an important voice and one we use to engage with companies where we invest.  We believe that engagement is the most important strategy considering CalPERS size, 340 billion in AUM.  Not all institutional investors have the size and magnitude of the CalPERS fund so we are uniquely positioned to use our voice and influence to change corporate behavior.  We have had numerous successes and are committed to more as we implement our 5 year ESG plan.  You'll notice that I have asked several questions during our board meetings on the progress our investment staff are making in implementing the plan and more importantly the changes in corporate behavior that are necessary to fully mitigate the risks associate with climate change.  I am personally motivated to create the right balance of maximizing our investment returns with a prudent level of risk.

In the event of opposition or delays from other CalPERS Board members and/or staff to act decisively to prevent the damaging consequences of fossil fuels, how might you support the urgent calls by scientists, public health experts and university faculty from around the world for expedited actions to dramatically reduce fossil fuel emissions while expanding investments in alternative energy?

CalPERS is a leader in its investments in alternative energy, including wind and solar farms.  I am committed to ensuring we have a world where future generations can thrive and that starts with this generation.  I have pushed to have more focus on ESG strategies and for the staff to report out on a regular basis our progress in implementing those

strategies.  I'm proud of the work that has happened to date but will not settle and continue to push for more attention and focus. I am happy to say that I have an excellent relationship with my fellow board members and know I can express my views, opinions and concerns and they listen. 

Michael Bilbrey