May 11, 2023 - Economy

CalPERS CEO Marcie Frost faces ESG pressure from both parties

CalPERS CEO Marcie Frost speaking at the Axios BFD event on May 10 in San Francisco.

CalPERS CEO Marcie Frost (L) and Axios' Dan Primack (R) at the Axios BFD event in San Francisco on May 10. Photo: Chris Constantine for Axios.

CalPERS CEO Marcie Frost runs America's largest public pension system, with more than $440 billion in assets under management. She's also in a political pickle, being pressured by both the left and right about ESG investing.

Driving the news: ESG was the subject of contentious debate on Capitol Hill yesterday, during a House hearing that played along predictable partisan lines.

  • A Republican witness called it an "undemocratic tax" aimed at achieving public policy goals (with which they disagree), while Democrats argued that ESG is an appropriate investment screen for assessing risk.

Back in California: Frost appeared at the Axios BFD event in San Francisco on Wednesday, telling the audience that she remains a strong proponent of incorporating ESG into CalPERS investment decisions, adding that opponents are misguided or misinformed.

  • For example, she noted that most CalPERS commercial real estate investments are coastal and urban, so it's her fiduciary duty to analyze the risk that climate change poses to the long-term values of those properties.
  • She added that her north star is fulfilling financial obligations to around 2 million California pensioners, and that if a sure-bet investment opportunity arose that failed all of CalPERS' ESG screens, she'd still support the investment and then become an "active voice" to help move the investment toward ESG improvements.

About that pickle: Frost also, however, is strongly against a Democratic bill in California that would ban CalPERS and another large state pension fund, CalSTRS, from investing in the 200 largest, publicly traded fossil fuel companies.

  • It also would require divestment from such existing investments, although there's a bit of wiggle room on that in the legislative language.
  • Frost argues that CalPERS exiting fossil fuel investment not only could have short-term negative consequences for beneficiaries, but also that it would remove the pension fund's voice from conversations about how to move fossil fuel companies toward energy transition and more transparency. In short, CEOs don't pick up the phone to speak with a non-shareholder.
  • California's State Senate is set to vote on the bill next week, and Frost said she believes it will pass (over the public objections of the CalPERS and CalSTRS boards).

Watch for yourself: The Axios BFD conversation with Marcie Frost, which also included her disclosing that CalPERS plans to make control investments, can be seen beginning at around the 24 minute mark:

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