extensive innovations to the existing green new metal gates were installed our the perimeter 9 project is funded inform there are no 9 community opportunity and our capital improvement plan to the 2008 clean and safe neighborhood it allows the residents and park advocates like san franciscans to make the matching of the few minutes through the philanthropic dungeons and finished and finally able to pull on play on the number one green a celebration on october 7, 1901, a skoovlt for the st. anthony's formed a club and john then the superintendent the golden gate park laid out the bowling green are here sharing meditates a permanent green now and then was

opened in 1902 during the course the 1906 san francisco earthquake that citywide much the city the greens were left that with an ellen surface and not readers necessarily 1911 it had the blowing e bowling that was formed in 1912 the parks commission paid laying down down green number 2 the san francisco lawn club was the first opened in the united states and the oldest on the west their registered as san francisco lark one 101 and ti it is not all fierce competition food and good ole friend of mine drive it members les lecturely challenge the stories some may be true some not

memories of past winners is reversed presbyterian on the wall of champions. >> make sure you see the one in to the corner that's me and. >> no? not bingo or scrabble but the pare of today's competition two doreen and christen and beginninger against robert and others easing our opponents for the stair down is a pregame strategy even in lawn bowling. >> play ball. >> yes. >> almost. >>

(clapping). >> the size of tennis ball the object of the game our control to so when the players on both sides are bold at any rate the complete ends you do do scoring it is you'll get within point lead for this bonus first of all, a jack can be moved and a or picked up to some other point or move the jack with i have a goal behind the just a second a lot of elements to the game. >> we're about a yard long. >> aim a were not player i'll play any weighed see on the inside in the goal is a minimum the latter side will make that arc in i'm right-hand side i play my for hand and to my left if i

wanted to acre my respect i extend so it is arced to the right have to be able to pray both hands. >> (clapping.) who one. >> nice try and hi, i'm been play lawn bowling affair 10 years after he retired i needed something to do so i picked up this paper and in this paper i see in there play lawn bowling in san francisco golden gate park ever since then i've been trying to bowl i enjoy bowling a very good support and good experience most of you have of of all love the people's and have a lot of have a lot of few minutes in mr. mayor the san francisco play

lawn bowling is in golden gate park we're sharing meadow for more information about the club including free lessons log [ pledge of allegiance ] >> we will start by going into closed session. do i have public comment? there's no >> we are coming out of closed session. is there a motion not to disclose? there's a motion, there's a second.

i always get this wrong. do we need to call for public comment on this motion? we will call for public comment. only on the motion not to disclose coming out of closed session. seeing no public comment, we will close public comment. there's a motion and a second. any discussion? could we take this item without objection? great, item passes. we are now coming back into the regular agenda. why don't we go ahead and start, did you do the pledge of allegiance? >> yes. >> president stansbury: we did the pledge of allegiance. why don't we go to the consent calendar? >> make a motion to approve. >> president stansbury: all right. i'm a little slow this morning. there's a motion and second. why don't we call for public comment on the consent calendar. are there any members who would like to address the commission

regarding the consent calendar? seeing none, we will close public comment. can we take this item without objection? great. we will call for general public comment. if anyone is here to speak on any of the items actually agendized, fossil fuels, we would ask you hold your public comment until we call that item. but if there's anyone else who would like to address the commission generally, now would be a great time to do so, please step forward. >> good afternoon, chairman and the board. my name is -- i'm representing united for respect, i believe last month you met with lily wayne representing united for respect. speaking on your current investment with solis and the impact with the toys r us campaign so hopefully what i say sounds familiar. as you know the san francisco employees retirement system approved a $300 million with

solis, one of toys r us's creditors. when the company went into bankruptcy last year, employees were told the company would survive and emerge stronger, instead the creditors including franklin templeton and others declared toys r us would be worth more dead than alive and march 2018 they went into liquidation. in june bloomberg reported toys r us had a buyer and would have kept half of the retailers 800 stores open, saving thousands of jobs but that deal collapsed when creditors, lead by solis alternative asset management turned in into liquidation. they pressed other debt holders to conclude the company was worth more dead than alive.

in june toys r us closed its doors and more than 33,000 employees around the country lost their jobs. toys r us historically paid severance to employees who lost their jobs when it closed its store but it ended it's severance plan before announcing it was closing. employees were never paid the severance they were promised. kkr and bank capital, firms that owned toys r us opened up dialogue creating hardship fund by affected employees. i will cut to the end here. i ask you all to consider, reconsider any further investments with solis acknowledging you already finalized a third of your commitment to solis fund, thank

you. >> president stansbury: thank you very much. are there any other members of the public who would like to address the commission under general public comment? seeing none, we will close general public comment. next item, please. item 6. >> action item. staff update/recommendations on six strategies to address climate transition risk. >> president stansbury: we can call public comment at any time. due to the smaller crowd, is there any preference from anyone who is here to speak on this item, whether they want to speak now or later? i will hold comment on this item until after staff has a chance to make the presentation, the floor is yours. >> very good. president stansbury, on january 24th this year the board approved six measures to adopt a carbon constrained strategy

for spurs investments. to summarize, the first was to adopt a carbon constrained strategy for $1 in the public market strategy, the second was to hire director of e.s.g. third is partner with institutional investors to promote initiatives that would reduce carbon emissions. fourth was to enhance our engagement activities including partnering with organizations such as series, p.r.i. and others. a fifth was to pursue renewable investments, number six and last item, develop a framework, an approach to identify the most riskiest companies to develop a plan to consider divesting, to develop a watch list and action plan for companies that were also deemed risky but not necessarily warranting divestment. today curt is going to walk us

through items 1-5. i will say in the recommendations we will be asking on item number 1 to remove the word passive that where ever we can find value whether passive or active, that we do so. but we have done a lot on each of these six. curt will walk through items 1-5. andrew will walk through item 6. i think you will see andrew and our partnership together with goldman as we created a really insightful framework for evaluating companies, including action plans and it's very data driven, very fact finded and the application of data and facts to reach a conclusion going forward. we will hear from any p.c. still doesn't support divestment. we will hear from them and they will also give us an update on some market activities that have taken place in the energy sector as well as other public

plans since we last, since we addressed this in january. and with that i will ask curt to walk us through items 1-5. >> thank you, bill. i will highlight select accomplishments or progress areas 1-5. two strategies bill described 1 and 4 are similar, they direct staff to pursue renewable or carbon restrained strategies. committed over 5% over 1.3 billion to such strategies. a billion of which occurred since the january 24th meeting. in march we invested $500 million in passive equity strategy with 50% lower emissions. in july we invested 300 of what will become $500 million with generation capital in a global equity strategy 80% lower emissions than the m.s.e.i. world index. in addition the last couple

months we committed $100 million to private market that focused on solar, wind energy storage, ev charging and efficiency investments. bill mentioned strategy number 2 which is not included on the slide before but it was to hire a director of e.s.g. as you know, we hired andrew in the beginning of may. a number of attributes one of which is modesty, he created these slides and refused to acknowledge we succeeded in strategy 2, he has a b.s. in environmental engineering from yale, came with ten years relevant experience, acting as e.s.g. advisor and technical research director. in the few months andrew has been on board he has accomplished a lot towards strategies 3 and 4.

3 and 4 require or ask sfers develop and support initiatives to reduce carbon emissions, increase sfers proxy and engagement activities. sfers has been an active participant in the working group. we have been active with the climate action 100 initiative. we have engaged with two super major oil and gas companies among the top ten fossil reserve owning companies in our framework andrew will describe in a moment. over this past proxy voting season, sfers voted in 65 shareholder resolutions including key votes at kinder morgan, range resource, that received majority shareholder support. sfers became a significant torrie to a variety of initiatives, agenda launched september 2018, global climate

action summit, developed by cdp series p.i. among others. in addition sfers has taken their own steps becoming a significant signatory. encouraging governments to one achieve the paris agreement goals. disclosure to develop consistent climate related -- finally we will participate in the newly launched c 40 divest invest forum which san francisco is a founding city. finally we will turn it over to andrew to talk about progress made in strategy 6 but to restate, strategy 6, the board directed staff, it was

described as identify the riskiest, dirtiest, define, establish procedures for watch list of high-risk assets, establish goals and time lines for engagements and outline options for targeted phase, divestment process. with that i will turn it over to andrew. >> thank you, curt. good afternoon, commissioners. so as curt said, i will talk now about strategy 6 and he outlined the different components of that, there's sort of a lot to unpack there. so i will try to do that as clear as possible and as efficiently as possible. i will start by talking really about how we have defined what a high risk fossil fuel asset is, how we develop a framework to assess what high risk fossil fuel assets are. i will go into a little bit of

details of what that framework actually is. i will then talk about how we applied that framework to our oil and gas holdings in our public markets portfolios. i will talk about the results of that and then ultimately the recommendations we are making on that. i will try to limit my speaking to about 12-15 minutes here. >> just one question. >> yes. >> i had asked for the riskiest and dirtiest fossil fuels to be removed. are those one? can you address that? is that one in the same riskiest and dirtiest or is there a difference there? so maybe you will address it. >> yeah, yeah. we will certainly address that. we have sort of were assuming that our approach captures that concept of dirtiest and riskiest. we reframed the wording a

little bit. but the goal is to not do that. so really our first step here when we thought about developing this approach was to survey the landscape of existing frameworks tool kits lists out there. to see if any of those was suitable for the task at hand. we found there's a ton of work that's been done in this space but nothing that was really suitable for what we were trying to do. what we did was roll up our sleeves and develop our own approach here. i just want to walk through some criteria we were focusing on. i think this is important how our approach builds on and improvements upon some of the existing approaches out there. so the first thing we wanted to do is design an approach that was forward-looking. when we think of climate risk how it will affect financial markets it's something that is both happening now but will

increase in its impacts in the future. we didn't want to look at metrics that were lagging metrics or static metrics to measure performance, but really think about how could we get a forward-looking view of the future in different scenarios that might play out as climate change becomes more impactful. the second thing we thought about was the different types of climate risk. there's physical risks from climate change, regulatory risks, market risks. there's a lot of dimensions to this. our view is different companies will be positioned differently according to these different risk categories. so there's a framework multidimensional, didn't look at one metric but a set of metrics and would ultimately give us a spread of performance of companies we were looking at. the third thing we thought about, let's get an approach

that's really investment relevant. i think a lot of the approaches that folks take, environmental impacts of companies, their carbon emissions, their fossil fuel reserves, sort of environmental impacts of the companies, are incredibly important and a key part. the other half of that is the financial positioning of companies and we really thought those things work in concert, the environmental impacts could be affected by the financial positioning and ability to address those is affected as well by how the company is positioned financially. and the fourth thing we thought about is an approach that was transparent in its use of data. something we could be clear and communicate in public session here to the board, to other stakeholders, to other asset owners. that might want to learn from our approach or replicate our approach.

so we really wanted to focus on data set that's were widely available and transparent. those are the principles and criteria we thought about as we went into this exercise. the next thing we did was interrogate the situation at hand. so we asked the question of in this wide-ranging scenario where climate change is going to have regulatory impacts, it's affecting the way our global energy systems are being shaped in the future, it's certainly affecting the planet and the people on the planet. there's all these forces at play. could we try to distill those down and coalesce around core concepts of what's going on and then ultimately how is this going to affect fossil fuel companies and their performance in the future?

we arrived at four themes or concepts here. it's clear which will be brought now or in the future. in a 2° scenario. 2° warming of the planet from pre-industrial levels to now, the goal of the paris agreement is to keep us below that level. that means a third of oil reserves, half of gas reserves and 80% of coal reserves will be unburned. so a lot of fossil fuel reserves need to stay in the ground. at the same time, the international energy agency which i think has done the best projections around different climate scenarios, different polycitra policy trajectories, they said even in a 2° world, fossil fuels will still account

for 20% of our energy needs. there will be winners and losers in this scenario. the overall pie will shrink but it's not going to go away in the next 20 years, so we need to understand who is better positioned and who is worse positioned. second, you know, the oil and gas sector itself is energy intensive in the amount of emissions that it produces. we are seeing globally an increase of carbon pricing schemes and regulations that either tax or cap and trade policies put a price on carbon. so this means there's increasing need for companies to be aware of their own emissions, how they are managing those, how they are managing those as a cost now and increasingly into the future. the third trend we looked at was really sort of complex nature of climate regulations

globally and where those are going. there's not a single set of globally consistent climate regulations. there's global agreements, there's regional agreements, national, sub national agreements. i think ten years ago you probably could have said and been right that the fossil fuel industry acted as a unit in denying climate science and opposing all climate regulations. that's not really the case now. you are seeing a bifurcation where some companies are trying to get a seat at the table, advocate for carbon pricing, other climate regulations. and others that are frankly more obstructionist and doubling down on investing in preventing climate regulation. it's our view that companies that do have a seat at the table that are actively managing, what is the risk for them will be better positioned

and more nimble in the future. and then the third or fourth thing we looked at was more about capital discipline of oil and gas companies. it's incredibly capital intensive to explore for oil and gas reserves and to bring those to market. historically he they have taken most of their cash to explore for new reserves, even taking on debt to fund that exploration activity as well. that business model really depends on oil prices being stable or increasing in the future. in the west, four years, 2014 there's been a $300 billion reduction in spending on upstream oil and gas activities. meaning companies are being now more cautious about their investments in acquiring the reserves and investing and bringing those reserves to market.

you are also seeing a different approach for different companies in terms of how they are approaching their spending. some companies are being more conservative, maybe using their cash to pay down debt to return it to shareholders through a buy back or dividend. it's our view companies that are being a little more conservative will be more nimble in the future, should there be a prolonged low price in oil or other needs to spend capital on. four themes we identified here that we think are the drivers of risk for fossil fuel companies into the future. we tried to really simplify each of those four areas into a sort of key set of questions that we wanted to ask. and this is sort of the basis

of the framework we developed. the first fundamentally what a company's fossil fuel reserve mix. what types of reserves are owned. are they relatively cheap or expensive? we think this will guide a company's ability to bring those to market. two, what's the company's own operational efficiency? is it carbon intensive, relative to the amount of revenue it generates? is it making any progress to become more carbon efficient over time? third, what is the koom come's approach to climate policy? is it engaging with regulators, being collaborative and constructive or actively opposing climate regulation? and then fourth, what's the financial health of the company? can we get a sense of its capital discipline. how is cash being spent. is it acquiring new reserves or spending it in other ways and what is the debt burden of

companies look like? do we think they will be able to service that debt going forward? so taking those sort of four question areas, we said can we get quantitative data points to really answer each of those questions and measure those areas. so we did a lot of work, a lot of research working closely with goldman sachs here to find the best data sets we could to measure performance in each area. for the first area, i will spend probably the most time on that, because that's probably the most complex to understand. using a data set from an organization called carbon tracker initiative, which is a think tank of financial industry experts who are now thinking about how to measure climate risks. and what they have done, on a company-by-company basis, taken a data set from an organization

called rystad. it has project-level data for all oil and gas projects all over the world. the geology of those projects, the ownership structure, the type of reserve, and importantly, the economics of those projects. you could get a sense from this database of the break-even price of all of the projects in a company's pipeline. basically all it's planned capex it plans to spend over the next several years. what they then do is they take that plan capex and break-even prices and they compare that to scenarios produced by the international energy agency that show what the price of oil and what the price of gas would be in two different scenarios.

one scenario where we achieve the goals of the paris commitment. limiting warming to 2° celsius. and a second where we actually achieve better than that and achieve it 1.75° celsius warming scenario. so what that means is the price of gas, the price of oil will decline over that time period. that could be plotted against the planned capex and project economics of each of these oil and gas companies and you could see which percentage of their planned capex would be wasted or outside of that scenario. you get a percentage for each company you could think of as wasted or excess capex a company is planning to spend but might not be able to actually bring those projects to market economically. the second area when we look at

operational emissions and efficiency, we are using a more traditional carbon footprint measure. looking at scope one and scope two emissions. we are normalizing this by revenue to get an efficiency measure and we are looking at a second area the percentage change of that efficiency over time, is the company making steps and efforts to improve its efficiency, or is its efficiency getting worse? the third area to look at the approach to climate policy, we use the data set from an organization called influence map that has comprehensively looked at companies engagement in climate policy and regulation. how they have lobbied organizations they have supported. ultimately giving companies the score to say are they actively supporting climate policy and regulation, or are they opposing it?

there are two main parts. they look what the company is directly doing and saying. the second area are they looking to see what organizations that company supports financially or through membership trade groups, chambers of commerce, think tanks, and what those organizations do. so you get an overall score of ultimately how the company is opposing or supporting climate policy. and then the fourth area of financial help and capital discipline, we look at two metrics. one is the altmann d, ultimate measure, five key parts that look at short-term liquidity, profitability, return on assets, market value and their turnover, when we look with help from goldman sachs, 66 energy company bankruptcies

over the last ten years, altmann z score, highly predictive of that bankruptcy, we think this is a very good measure of solvency risk for this industry. the second measure we looked at was a measure of operating cash flow minus capex over total assets. this is giving us a sense of how the company may be spending it's operating cash. is it spending this on capex to develop new assets and acquire new reserves they might not bring to market or using it for other purposes, paying down debt, paying dividends, doing share buy backs or keeping cash reserves. so those are the sort of seven metrics we ended up on in four categories. the goal here is that looking at each of these four categories we can get a

holistic, comprehensive view of climate risk. before we apply the framework, we did consult with a wide range of industry experts to really validate our thinking, validate our views. you could see those organizations on this screen here. i won't go into those in detail but happy to discuss what those organizations do, if you have questions. and then before i talk about the results of the framework, how we applied it, i think it's really clear to just reiterate that where this framework begins and ends, where it measures and doesn't measure, there are some issues we need to be aware of in terms of scope and limitations of a framework like this. one, we have only applied through public market portfolios not private investmentsment we have limited this to the oil and gas sector, so we haven't looked at thermal

coal companies, which i will touch on at the end of the presentation. and then most importantly, the framework is really meant to be a tool to evaluate risk. it's not an investment decision-making framework. it includes no considerations of the valuations of these companies, whether they are priced cheaply or extensively in the market and whether they may be a good investment from that perspective. here i will walk you through how we applied this framework to our oil and gas investments. and let you know what we found here. we started with a universe of 155 companies. we applied the framework to that set of companies. sfers has existing positions in 133 of those companies.

when we applied our framework, seven metrics, what we did, was we flagged any company that had, was performing in the worst quartile in at least one of the climate metrics and also the worst quartile of anyone of those metrics and page 15 of the memo shows which metrics we were calling the core climate metrics and what are the other metrics, essentially the first three categories and then the financial metrics, we didn't flag companies that were just performing poorly from a financial perspective. what this resulted in was 25 companies that had these two risk flags performing in the worst quartile. we are calling high climate risk transition companies. 109 of the companies didn't have those risk flags.

and we treat them somewhat separately. within this set of 25 companies that were high climate transition risk companies, we further identified seven companies that were highest risk amongst those. we define that by looking at the percentage of stranded capex that these companies were projected to have. if they were in the worst quartile. if they were in the worst quartile of bankruptcy risk and the worst quartile, free cash flow, return on assets, how they were spending their cash. we assume these companies were high risk because they have risky reserves in their pipeline. they also have poor financial health measured by their solvency risk. it appears their spending cash on more capex to apply to more

reserves. so these are the seven companies that we would recommend for a targeted phased divestment. the remaining 17 companies on a high-climate transition risk lens, we recommend putting on a watch list to engage with over time. [ please stand by... ] .

-- i think it's clear what die

investment entails but i want to talk about what this engagement would mean. one, engaging with companies in risk and in terms of engaging with companies what we're proposing is to directly engage with companies or engage with them through different collaborative initiatives and really develop a time-bound -- >> commissioner: can you go back to the previous slide. so i'm clear this, five companies are exxon mobil and petrobox -- who are the five? >> wire -- we're on page 20. >> the five companies we have

current investments in are apache, gulf port energy, hess corp, qep resources an wpx energy. we have $10 million of net exposure to them and 8$8.5 million of net exposure that would be divestable. meaning it's not in a coming ald -- commingled account structure. >> not commingled? and there's other high risk through the lens but we don't have current exposure to those companies. >> thank you for clarifying that. in talking here about what the engagement would entail, the

idea is we would be guided by the risk framework and engage based on the risk categories we flagged through the framework and really develop for each company a time bound and company-specific engagement plan that we would execute over a period of several years. we foresee three potential outcomes. one is the company takes steps to identify -- manage the risk we identify and would remain comfortable remaining invested in that company and continue to monitor that company. two, is where the company does not take steps to manage the risk over the time frame we identified, in which case we can consider filing shareholder resolution or restricting investment in those companies. the third category could be companies that begin to make

steps not in the time frame but feel they're making progress to continue engaging with them. in terms of our engagement with managers, we think about that in two ways. one is with our passive managers. we want to focus on engaging with them around how they're thinking about climate risk. how they're asset stewardship programs engage with companies around climate risk and how they're proxy voting policies aligned with a prudent approach to climate risk management. with active managers, on the other hand, we're focussed more on their investment process, understanding why they may hold a company that's on our list of high climate transition risk companies. how they think about these risks and if they agree or don't agree with the process that we've outlined in our framework. and we would hope to engage with

those managers over time to further our understanding but also contribute the research we've done to their thinking. and sort of as a bit of an addendum. i mentioned we didn't directly address thermal coal companies and focussed on oil and gas companies. as you know, our current investment restriction restricts development in companies that generate more than 50% of revenue from thermal coal. we thought it would be prudent to look at companies that generate between 10% and 15% of revenue from thermal coal and further scrutinize those. there are four companies that fall in the category we cooperate cooperately -- currently invested in. we proposed to engage with those companies to understand their plans around their thermal coal business. two companies announced plans to exit the thermal coal business.

the other two have no information that they've communicated around their plans for thermal coal but we'd want to engage and understand if those companies as well have plans to exit that business or not. so to wrap up here, there's a lot of next steps we have for the analysis. it's a starting point for us. go through the four next steps and ultimately what our recommended action areas are. so in terms of next steps for staff, we plan to continue to identify and prioritize investments around strategy area five that kurt talked about. i think there's a lot of investments we made. we continue to get opportunities in this area that are attractive so we'll continue to prioritize those and will report annually on how much we've invested in

those opportunities as well as the performance of those investments. annually, we plan to rerun the framework analysis against holdings in oil and gas companies. we want this to be a dynamic process where companies can be taken off the watch list for or high-risk list and four added to the list. we want to run that and consider actions based on up-to-date data. we'll continue to improve this framework, the robustness of the data. our understanding of climate risk and we'll continue to collaborate with other investigators and learn how they're -- investors and how they're handling risk and how they're taking opportunities in the climate position. in terms of the recommended action areas, there's five recommended action areas here. the first of which as bill

mentioned was to modify strategy area one. to make the carbon constrained strategies of $1 million and remove the word passive so it relates to our markets portfolio. the second is to fulfill to begin prudently phased divestment and look at the five companies i identified, restrict further companies in the two companies that displayed high climate transition risk. the third would be to engage with companies that are determined to be high climate transition risk according to the framework. the other companies that within our top-ten holdings we also recommend adding to the list and the tar sand companies as well.

the fourth recommended action is to engage with thermal coal companies that receive between 10% and 50% of revenue from thermal coal and consider divest from companies that do not make a commitment to exit the thermal coal business in the near term and the fifth area is to engage in external managers that hold positions in fossil fuel companies beginning with those invested in high climate transition risk companies as determined by our framework to understand how they are including those considerations into their investment process. so i will stop there and now pass it over to alan who will make comments on nepc's behalf. >> in preparation for this meeting we prepared two documents for the board. one was ann update of the

january 24th memo we did where we took exception to the idea of broad-scale diversification and took the material presented and presented comments on our views of those approaches. i can take a moment to re-summarize what we said in the january 24th memo or can go to what changed since then and then to the commentary with respect to the staff program at your pleasure. >> commissioner: a very brief summary of what you previously said and what has changed since. >> again, our opposition to the idea of broad-scale diverseme diversement -- divestment was we owe the retirees of the plan was a return the the highest acceptable risk and contributions plus investment returns over time equals benefits plus expense. if you take actions that

threaten or jeopardize the "i" in that equation, you have to reduce benefits, which nobody wants to do, or the city has to make the -- the city and employee interest -- have to make additional contributions so we're aware of the cost of a broad-scale divestment action. that was the concern. we don't believe divestment programs have been effective. the thing that will drive energy companies to stop producing fossil fuel is when the demand goes down and that will take time to get there. i personally hope the day happens sooner rather than later, but in the meantime filling the securities forfeits our chance to influence the behavior of the companies. as to the three costs we outlined in the original memo, we talked about the loss of diversification ed with

eliminating fossil fuel security. if you're an investor in a group of securities an arbitrarily remove a portion of those securities by definition, the portfolio you have left is more volatile. and volatility over time costs money. you have to offset it with returns and in the original memo, we estimated the cost of the lessened volatility of -- of the increased volatility ed with an energy-list portfolio was about 28 basis points. when we update the data it's gone up. not surprisingly, we are in an environment where energy price starting to rise and the diversification benefits of energy securities become more important. so as to that point one, the cost of the limited volatility, that has risen in the interim period. our estimate, while it's a very broad estimate is that's

somewhere between $7 million and $25 million a year to the pension fund. benefit two of invest inning energy securities, you build a portfolio to do well in multiple environments. and the environment we anticipate happening is going to be an environment of more growth than we've seen historically, higher inflation and higher interest rates. and in that environment where you have accelerated growth, how does production get accelerated? it uses energy so that higher growth will lead to higher energy prices, you're already seeing that in the cost of oil which has gone up dramatically since we met in january. that leads to higher returns to the energy companies that produce that. energy, real estate and you need

that in your portfolio and if we look at the data since january, on point four of the original memo, we actually looked at the stimulative effect of tax cuts and growth and over the last six months the s&p 500 without energy has under performed. we're starting to see a greater likelihood of inflation and a greater likelihood energy stocks will do well. finally, on the concerns of limiting the concerns of active managers, i know the board understands but the bulk of the securities you hold in energy stocks are not held by you, they're held by managers. there are managers that we're paying a fee to to exercise their judgment on the attractiveness of those

security. they don't buy an energy stock because of an energy stock. they buy one they think will do better than the peer groups and over time if the managers are successful they'll earn you an alfa that will help offset the cost of your investment program. that alpha is related to their ability to discriminate between good stocks and bad stocks. over the last six months the average return of fossil fuel securities held by your active managers has exceed the dow jones oil and gas index by almost 6%. they've earned 21.7% on that portfolio versus 15.37% in the index. we said before we're in a low-return environment. that's a challenge to all of us. in that environment, the alpha that is going to be provided by your managers becomes more important and so arbitrarily telling them they can't decide

whether an energy stock is a good or bad buy, it's an energy stock so they can't do it, limits the ability to add that alpha in the future. the last six months when we've had an increase in oil prices would demonstrate that. >> alan, if i can break in one minute. the first call to divest originally done at $30 for the price of oil. now, it's $80 and we haven't divested but oil's gone up. how much money does that mean in the pension around? you had money and other thing that have gone up. had we not had it there -- >> i think a fair measure is the measure we talked about. >> we actually wanted to take the portfolio you had and see

what it did. the problem is your managers are selling and buying stocks all the time so it's very difficult. but again in terms of energy versus non energy, you've made a percent. in terms of the alpha in the energy stock is another 6% so that's 7% on that portion right off the bat and there's probably other factors we're overlooking. so by all key measures, our concerns for diminished returns from a divestment have been heightened by the passage of time and we're in the environment whether -- like it or not, during a period of accelerated economic delivery, modern society demands more power and right now we don't have the ability to supply that power throughal earn t -- alternative sources an it will be more production of fossil fuel and we can either not

participate or we can. those were our conclusions. before we move to the second part, which really deals with what your staff has already proposed proposed, in our mind quite effectively, i have some events eventses -- events that have happened since this was produced. the board member of the cal per according to the los angeles times was displaced in her office by a member who's primary object was cal pers was spending too much i'm on ifg issues. have you an exclusive duty to the beneficiary of the plan. the optimistic one is the one this morning, the wall street journal announced exxon is putting up to $1 million to promote tar bon -- carbon tax. i don't think it happened

because people threatened them but it's a commitment to fight climate change which represents a break from their traditional plan and republican orthodoxy. i think there's good thing happening out there that are happening without divestment and i don't think will be helped by divestment. that was the update of our data is everything we've seen happen in the last six months would reinforce the view that or trarl selling your energy -- that arbitrarily selling the energy stocks would hurt thet plan. on the staff memo we're supportive of the first five items you've undertaken and a don't want to underestimate the value you have by hiring a director of e.s.g. every company i've ever worked in when they have a problem they put together a committee and the committee comes up with brilliant ideas to fix it but if

you don't say to one person your job is to deal with this, it never gets done so you have a step no one has done and you have seen what's been an accomplished and it's a testimony is there's a person whose job it depends on the job getting done and we've been through the actions an don't think they cost you a lot and they have indeed produced results. on the final portion of the memo, step six, in this case, it accomplishes what amounts to phased divestment. if i tell you i'm opposed to divestment, i'm opposed in phases too. in saying that, you adopted a methodology that takes a concept wendy her solve would admit was fuzzy and riskiest and dirtiest and turns it in