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CalPERS to reassess investment portfolio, divesting from Russia

By Janean Sorrell, Mar. 22, 2022

Following Russia’s invasion of Ukraine, both the U.S. and California government have retaliated with economic sanctions hoping to strip Russian President Vladimir Putin of economic resources, including the millions of dollar in investments from California Public Employees’ Retirement System.

On March 8, President Joe Biden announced a ban on Russian energy imports. Gov. Gavin Newson also announced on March 4 the California Public Employees’ Retirement System, the largest U.S. pension fund, which covers Cal Poly Pomona employees, halted all transactions in Russia. Owning roughly $420 million in Russian public stocks and $345 million in Russian real estate assets, Russian assets represent 0.17% of CalPERS total investment portfolio.

“These kinds of economic tools are the next best option to direct military action which would be much worse because of the risk of escalation between the West and Russia, and the most extreme possibilities could actually lead to something akin to World War II,” said Marc Scarcelli, associate professor in the Political Science Department.

According to Scarcelli, this is the biggest war in Europe since World War II and is a direct challenge to the entire postwar world order and “should concern us all as such.”

“Divestment is one of the more popular ways to try and pressure a foreign government,” said Scarcelli. “It’s not a perfect tool and one of the biggest concerns for those who have investments and are under pressure to divest is that they may worry about economic losses.”

In CalPERS’ 2020-2021 annual investment report, the pension fund controlled nearly $725 million worth of stock in Russia’s largest companies and owned more than $100 million of stock in just four companies including Novatek, Russia’s second-largest natural gas producer; Gazprom, the largest publicly traded gas company in the world; and Lukoil Oil Company, one of the largest global producers of crude oil.

In response to Russia’s attack on Ukraine, CalPERS announced the following actions:

– “CalPERS has ceased all transactions in Russian publicly traded equity and has stopped the flow of any new investments into the country.”

– “CalPERS is actively assessing its real estate investments and determining a path forward.”

– “CalPERS is reviewing all investments in emerging markets, including Russia, due to the impacts the crisis has had on all financial markets.”

– “CalPERS is following all regulatory requirements promulgated by U.S. Office of Foreign Assets Control and the sanctions that are in place.”

In a press release Newsom stated, “California stands with Ukraine and the Ukrainian community in California – one of the largest in the country. Our state shares many close ties with Ukraine and will continue our efforts to support the nation’s brave fight for the fundamental rights and freedoms of its people.”

Faye Wachs, a professor in the Department of Sociology, agrees with divesting from Russian oil.

“I think (CalPERS) should leave all problematic investments,” said Wachs. “It should leave all fossil fuel investments and it should leave any place that have some serious problems.”

Although this divestment has implications for higher gas prices, Christopher Stoughton, a lecturer in the Department of Political Science, said there may be a silver lining.

“The sooner we transition away from fossil fuel the better,” said Stoughton. “I think it’s possible that this whole horrible situation could help accelerate transition away from fossil fuels.”

According to the U.S. Energy Information Administration, in 2020, Russia was the third-largest producer of fossil fuels after the U.S. and Saudi Arabia.

On March 8, the United Kingdom announced that it would phase out imports of Russian oil by the end of 2022, citing it would give the country adequate time to find alternatives.

“The biggest issue is going to be higher energy prices,” said Scarcelli. “I think the appropriate political frame for understanding this is to make people realize that we all will have to endure a little bit of that financial pressure and think of it as perhaps doing our own small part, to put pressure on Russia.”

As of March 16, 780 civilians have been killed in Ukraine and 1,252 injured.

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