Key Takeaways
- • San Francisco City & County Employees' Retirement System (SFERS) estimates its restrictions on U.S. tobacco companies have cost the $38.6 billion pension fund approximately $169.2 million cumulatively from May 1998 through June 2026, per staff estimates in Nov. 4 board materials.
- • The SFERS board approved annual ESG review changes on Nov. 4, adding B.A.T. Capital Corp. to the restricted tobacco list and removing 2 tobacco companies, leaving 16 on that list.
- • Restrictions on Sudan-related companies added an estimated $53.7 million since November 2006, while oil and gas restrictions have had a negative impact of roughly $116,400 since November 2018.
- • Publicly traded oil and gas companies represented about $254 million, or 0.6%, of SFERS assets as of June 30, with no new oil and gas additions recommended for 2026.
- • Staff recommended adding five thermal coal companies to the restricted list, leaving 58 companies on that list, and recommended no direct exposure changes that affect current holdings.
Summary
The San Francisco City & County Employees' Retirement System's restrictions on U.S. tobacco and oil and gas companies have cost the $38.6 billion pension fund an estimated $169.3 million in historical returns, according to presentations included with Nov. 4 board meeting materials, as reported by Pensions & Investments. The largest estimated negative impact came from the tobacco restrictions, which staff calculated at approximately $169.2 million cumulatively from May 1998 through June 2026. Restrictions on certain oil and gas companies had a negative estimated impact of approximately $116,400 since November 2018.
The estimates rely on custom MSCI indexes designed to approximate returns had the restrictions not been implemented, and they do not represent directly observed investment returns. By contrast, restrictions on Sudan-related companies had an estimated positive cumulative impact of $53.7 million since November 2006, while thermal coal restrictions added about $2.8 million since May 2017 and firearms and ammunition restrictions added about $2.7 million since October 2016. Staff characterized the thermal coal, firearms and oil and gas impacts as negligible relative to the total fund.
At the meeting, the board approved recommendations from Andrew Collins, director of ESG investing, and Michael Lowe, investment officer for sustainable investing and stewardship. Among thermal coal companies, staff recommended adding China Qinfa Group Ltd., PT Adaro Andalan Indonesia, PT Alamtri Resources Indonesia, PT Petrosea and Dilip Buildcon Ltd., leaving 58 companies on the restricted list. SFERS had no direct exposure to the five proposed additions as of Sept. 30. Among tobacco companies, staff recommended adding B.A.T. Capital Corp., a subsidiary of British American Tobacco, on a preemptive basis because it has issued publicly traded debt and can issue equity. The changes leave 16 companies on the restricted tobacco list.
In oil and gas, staff recommended no additions for 2026. The pension fund instead placed 12 companies with high climate-transition risk on a watch list, including six designated for priority engagement: Chevron Corp., ConocoPhillips, Exxon Mobil Corp., Occidental Petroleum Corp., Petrobras and Suncor Energy. As of June 30, publicly traded oil and gas companies accounted for about $254 million, or 0.6%, of SFERS assets, with $178 million in public equities representing 1.4% of that portfolio, compared with a 2.2% weighting in the MSCI ACWI IMI index.
Elsewhere, staff recommended adding CSG N.V., a Czech industrial and defense company that completed an IPO in January, to the firearms restricted list, which will contain 14 companies after the removals. Staff recommended removing CRRC Corp. from the Sudan list, citing an improved MSCI ESG rating from CCC to AA, which leaves five parent companies and their identified subsidiaries on that list. SFERS also maintained restrictions on Russian and Russia-related sanctioned securities, and has had no direct Russian exposure since Nov. 30, 2023.
The estimates rely on custom MSCI indexes designed to approximate returns had the restrictions not been implemented, and they do not represent directly observed investment returns. By contrast, restrictions on Sudan-related companies had an estimated positive cumulative impact of $53.7 million since November 2006, while thermal coal restrictions added about $2.8 million since May 2017 and firearms and ammunition restrictions added about $2.7 million since October 2016. Staff characterized the thermal coal, firearms and oil and gas impacts as negligible relative to the total fund.
At the meeting, the board approved recommendations from Andrew Collins, director of ESG investing, and Michael Lowe, investment officer for sustainable investing and stewardship. Among thermal coal companies, staff recommended adding China Qinfa Group Ltd., PT Adaro Andalan Indonesia, PT Alamtri Resources Indonesia, PT Petrosea and Dilip Buildcon Ltd., leaving 58 companies on the restricted list. SFERS had no direct exposure to the five proposed additions as of Sept. 30. Among tobacco companies, staff recommended adding B.A.T. Capital Corp., a subsidiary of British American Tobacco, on a preemptive basis because it has issued publicly traded debt and can issue equity. The changes leave 16 companies on the restricted tobacco list.
In oil and gas, staff recommended no additions for 2026. The pension fund instead placed 12 companies with high climate-transition risk on a watch list, including six designated for priority engagement: Chevron Corp., ConocoPhillips, Exxon Mobil Corp., Occidental Petroleum Corp., Petrobras and Suncor Energy. As of June 30, publicly traded oil and gas companies accounted for about $254 million, or 0.6%, of SFERS assets, with $178 million in public equities representing 1.4% of that portfolio, compared with a 2.2% weighting in the MSCI ACWI IMI index.
Elsewhere, staff recommended adding CSG N.V., a Czech industrial and defense company that completed an IPO in January, to the firearms restricted list, which will contain 14 companies after the removals. Staff recommended removing CRRC Corp. from the Sudan list, citing an improved MSCI ESG rating from CCC to AA, which leaves five parent companies and their identified subsidiaries on that list. SFERS also maintained restrictions on Russian and Russia-related sanctioned securities, and has had no direct Russian exposure since Nov. 30, 2023.
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