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Groups say CalPERS, CalSTRS flout Iran divestment law

Past a state deadline for selling the investments, CalPERS hasn't sold any of its $900 million in holdings in foreign firms working in Iran's defense or energy industries.

February 25, 2010|By Marc Lifsher

Reporting from Sacramento — More than two years after California required the sale of investments in foreign companies operating in Iran's defense and energy industries, the state's biggest public pension fund still hasn't sold any of its $900 million in holdings in those firms.

On Wednesday, legislators heard criticism from Jewish groups and an Iranian torture victim contending that the California Public Employees' Retirement System and to a lesser extent the State Teachers' Retirement System are flouting a 2007 law designed to bring pressure on the Islamic Republic.

The United States government has identified Iran as a state sponsor of terrorism and is rallying international support to tighten economic sanctions against the Middle Eastern country, which is believed to be developing a nuclear weapon.

Iran claims it's enriching uranium to produce fuel for nuclear power plants to generate electricity.

U.S. activists say they are unhappy with the California pension funds.

"We have been both frustrated by the inaction and dismayed by the persistent excuses offered for why the largest state employees pension fund in the nation and the largest teachers pension fund in the national feel it is acceptable to ignore a law," said Marc Carrel, chairman of the Jewish Public Affairs Committee of California. Carrel testified at a joint hearing of the Assembly and Senate committees that deal with retirement and pension issues.

CalPERS and the teachers retirement system said at the hearing that they were complying with the law by each identifying about two dozen companies, whose stock they hold, that operate in Iran.

Both pension funds said they have started "constructive engagement" with the firms, mainly oil and gas companies such as Royal Dutch Shell and Russia's Gazprom, to persuade them to leave Iran.

But CalPERS officials have sold none of the pension fund's Iran-related investments because they do not want to incur financial losses or transaction costs for its $200-billion portfolio. CalPERS estimates that losses from a sell-off could exceed $100 million under certain conditions.

The CalPERS board in February 2009 "decided after careful consideration . . . to not divest shares at that stage, having regard to its overriding fiduciary duty," CalPERS said in a Dec. 31 report to the Legislature.

The law's author, Assemblyman Joel Anderson (R-San Diego), said he wasn't satisfied with the board's decision.

"You have completely thumbed your nose at the Legislature," he told CalPERS officials at the hearing. He said he was working with other lawmakers to take new legislative or legal actions to force the pension fund to follow the law.

The somewhat smaller teachers pension, which has $130 billion in investments, has been more aggressive in following the intent of the 2007 Iran divestment law. Officials said they sold $21 million worth of stock in three South Korean companies for a $7-million loss. They've restricted further purchases of stock in four other companies and are reviewing the status of three more. It took action against some of those same companies to comply with an earlier law to divest in foreign firms working in Sudan, a move aimed at curbing government-supported genocide in the Darfur region.

Critics counter that CalPERS' argument that the cost of divestment is too high rings hollow and that potential financial losses from divestment would be minimal. Florida, which has a similar Iran divestment law, incurred a cost of less than one-hundredth of 1 percentage point when it sold its shares in oil companies operating in Iran, Carrel said.

CalPERS' current stance on Iran divestment differs from its involvement in carrying out California's highly successful 1986 divestment law that helped break the back of the racist apartheid regime in South Africa and bring in free elections and majority black rule.

What's more, CalPERS in particular has carefully cultivated a reputation for socially and environmentally responsible investing that doesn't fit in with a policy of buttressing the government of a country that is developing nuclear weapons and threatening to use them against Israel, lawmakers contend.

The 2007 divestment law was approved on unanimous votes in the state Senate and Assembly and was signed into law by Gov. Arnold Schwarzenegger.

It required the pension funds to identify companies in their portfolios by June 30, 2008. Those companies then would be notified that they must take "substantial action" to get out of Iran and would have one year to comply.

After that, the pension funds would be compelled to sell any securities they own in the companies.

marc.lifsher@latimes.com

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