Can CalPERS influence how the Dakota Access Pipeline is built?

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Thursday, the Dakota Access Pipeline protest site was cleared of its activists after a deadline passed to leave the encampment. The Standing Rock Sioux Tribe began protesting the pipeline out of concern that a leak could contaminate their water supply. Since last April, thousands of people come through to protest the pipeline and support the tribe.

But, as the activists were being told to leave, some big investors were asking those building the pipeline to address the concerns of the Standing Rock Sioux Tribe. This includes California’s big public pension fund CalPERS, which has teamed up with more than 100 other pension funds and major investors. They are calling on the banks financing and the company building the Dakota Access Pipeline to address the concerns tribe and reroute the pipeline away from Native American land.
Editor in Chief for Pension 360, Ted Ballantine, answered our questions about why CalPERS and other investors are raising their concerns now.

Ted Ballantine: Well I’m positive that these investors- CalPERS included- have been weighing their options internally for a little while now. There’s two reasons they decided that now is a good time to come forward publicly. Number one: this story really isn’t going away, and investors are feeling a pressured to take a stand. There were protesters outside of the CalPERS’ office last week. Number two, and this is the bottom line: it’s becoming more and more clear that there’s a financial reason for investors to speak up. These energy companies, clearly, they want to go full steam ahead. CalPERS is saying, hold on, opponents of this pipeline, the tribes, the scientists, have legitimate concerns here and you can’t just brush them off. This isn’t just about third quarter revenue figures. It’s about long term environmental and reputational risk. These energy companies probably have a short term view of the situation, but a lot of these investors, and CalPERS in particular take a much longer view. They are thinking 10 or 20 years down the road, and as long as the pipeline is there, even if the builders have left, the environmental risk remains.

KCRW: The investors are calling on the banks and the builder to rethink their plans in part for business reasons. They’re concerned about the impact that this whole project could have on the bank’s brands and that it could drive away customers.

TB: Yeah. There’s a phrase that all PR is good PR, but that phrase does not apply to the financial world, and reputational risk is taken very seriously. You only have to look back to the past 12 months and the Wells Fargo situation. There are customers now, and not just regular people, but institutions and entire states like California who simply won’t do business with Wells Fargo.

KCRW: Wells Fargo has basically had a string of challenges, basically inflicted on themselves. The big one being that many of there employees, feeling under pressure to reach quotas, signed existing customers up accounts, credit cards, what have you that the customers didn’t ask for. 

TB: And now they’re going through serious PR issues, and it’s leaking into business lines being closed off.  There’s legal liability to consider, and just as a side note, a lot of these investors, CalPERS included, owned BP stock when the massive oil spill happened. BP’s mismanagement of that situation and the spill itself cost investors billions of dollars, and nobody wants to be in that situation again. Especially when this Dakota Access Pipeline hasn’t been built. The problem can be nipped in the bud now. Investors can talk all they want about the moral implications about this project, but energy companies speak the language of money, and so that is the language that CalPERS is going to try to use to convince these energy companies to reroute the pipeline. Now, I have no idea if it will work, CalPERS has engaged with lots of companies in the past, they’ve been effective often. This is a high profile issue and a high profile task. A legal injunction seems unlikely at this point. So, honestly, these investors are probably the best hope anybody has of convincing these energy companies to reroute the pipeline, to reconsider the project.

KCRW: How much clout do these investors have with these banks, with the energy companies? I mean, what kind of scale of investment are we talking about here?

TB: CalPERS has in the ball park of $7 billion invested in the energy companies and the banks underwriting the pipeline. So their voice matters and the fact is that they have share holder rights and voting rights. In addition to that, they have the ear of the executives of these companies. Again, it doesn’t mean that the energy company is necessarily going to listen to them, but their voice is going to be heard much louder than if CalPERS had just divested entirely and walked away from the situation.  CalPERS has gone the divestment route in the past. You know, they don’t have tobacco holdings anymore, they’re getting rid of all their thermal coal, but those industries are still around; even though CalPERS isn’t investing in them, and they are still making money, you know. So was the divestment effective? If the point is to give a symbolic moral stand, then, yes, it was effective; but if the goal is to actually change behavior at these companies, then I think remaining a share holder is clearly the more effective option.

(Photo: Fibonacci Blue)