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What Exactly Is “Constructive Engagement”?

Yesterday, I wrote about SB 185 (De León) which mandates that California’s two giant pension funds to liquidate their investments in thermal coal companies on or before July 1, 2017.  One aspect of the bill that I didn’t cover yesterday is the additional requirement that CalPERS and CalSTRS “constructively engage with a thermal coal company to establish whether the company is transitioning its business model to adapt to clean energy generation, such as through a decrease in its reliance on thermal coal as a revenue source”.

For those who aren’t familiar with the term “constructive engagement”, it refers to President Reagan’s policy of continuing to deal with South Africa’s apartheid regime while pressuring it to reform itself.  In choosing to use the term “constructive engagement”, the legislature has not so subtly equated the thermal coal industry with the ignominy of apartheid.  Lest there be any doubt about how the legislature views the thermal coal industry, the Legislative Counsel’s Digest for the bill compares divestment in thermal coal to investment in Sudan and the energy sector of Iran:

Existing law prohibits the Public Employees’ Retirement System and the State Teachers’ Retirement System from investing public employee retirement funds in a company with active business operations in Sudan, as specified, and requires these retirement systems to liquidate any investments in a company with business operations in Sudan.  Existing law also prohibits these retirement systems from investing in a company that has specified investments in the energy sector of Iran, as defined, including in a company that provides oil or liquefied natural gas tankers, or products used to construct or maintain pipelines used to transport oil or liquefied natural gas.

CalPERS is anxious to embrace “constructive engagement”.  On the very day that Governor Brown signed SB 185, CalPERS issued a press release applauding Senator De León and Governor Brown and announcing that it will “immediately” take steps to engage the 27 thermal coal companies in which it has investments.  The announcement of immediate action is noteworthy since the bill doesn’t take effect until January 1, 2016.

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