Answering the Call to Global Action on Climate Change

Blog entry Jack Ehnes

Global leaders gathered at the United Nations Climate Summit 2014 in New York this September in a show of solidarity for climate change policy. CalSTRS was among the more than 800 organizations to contribute to what many hope is the beginning of a comprehensive global agreement on climate change anticipated to take place in Paris in December of 2015.

Summit attendees were comprised of international heads of government, finance, business and various environmental organizations. Each came with a response to U.N. Secretary General Ban Ki-moon’s call for bold action on climate change.

The U.N. website mentions three major pension funds from North America and Europe which, at the summit, announced plans to accelerate their low-carbon investments. CalSTRS was one of the North American funds to take such action. In support of scaling up clean energy investments, we announced plans to increase clean energy and technology investments from $1.4 billion to $3.7 billion by 2019 across all asset classes. Our commitment to step-up clean energy and technology investments and see a universal climate agreement come to fruition runs deep.

This year, the Teachers’ Retirement Board elevated sustainable investments as a key, strategic priority for the fund. In response, CalSTRS has been actively pursuing low carbon/clean energy investments through its Green Initiative program, with clean technology private equity investments, green bonds, green buildings and renewable infrastructure funds. Globally, institutional investors like CalSTRS, with a desire to see action on climate change, also search for appropriate clean energy, low carbon investments.

Collectively, our goal is to reduce portfolio risks associated with climate change and high carbon assets, and to find new sustainable investment opportunities that meet each organization’s risk return criteria. While some organizations may employ different methods to achieve this goal, for example, divestment verses engagement, we firmly agree on one thing: Action on climate change must happen now.

If we are to preserve our natural resources, we must begin a global transition to a low carbon economy. This will require significant increases in clean energy investments, as explained in the Clean Trillion report by Ceres. According to the International Energy Agency, and as mentioned in the report, the world must invest at least an additional $1 trillion per year – a Clean Trillion – into clean energy by 2050 if we have any hope of limiting global warming to 2 degrees Celsius and avoiding the worst impacts of climate change on our environment, health and the global economy.

Scientific evidence clearly indicates a concerning increase in global temperatures that warrants prudent action. The NASA website states, “All three major global surface temperature reconstructions show that Earth has warmed since 1880. Most of this warming has occurred since the 1970s, with the 20 warmest years having occurred since 1981 and with all 10 of the warmest years occurring in the past 12 years. Even though the 2000s witnessed a solar output decline resulting in an unusually deep solar minimum in 2007-2009, surface temperatures continue to increase.”

Although we are not scientists, CalSTRS is an organization comprised of financial experts with a responsibility to secure the financial future of our membership – which includes all of California’s K-12 and community college educators. As financial experts, we must consider all known evidence that can impact the performance of our fund.

Our assessment of the evidence points to a need to address carbon risks to our portfolio associated with investments in fossil fuel companies. In the coming year, we will explore ways to further mitigate this risk while also taking steps to educate our stakeholders and members on our actions to increase their awareness of this critically important topic.