CalSTRS Commits $2.5 Billion to Low-Carbon Index
CalSTRS supports environmental, social and governance (ESG) principles by investing in low-carbon strategies for U.S., non-U.S. developed and emerging markets
WEST SACRAMENTO, Calif. – The California State Teachers’ Retirement System today committed up to $2.5 billion to low-carbon strategies in U.S., non-U.S. developed and emerging equity markets.
The passively managed equity portfolio will be invested in an index designed to have significantly lower exposure to carbon emissions than the broad market and nearly complete reduction in exposure to fossil fuel reserves.
Committing to a low-carbon index is part of a multi-faceted approach to align the portfolio with the market realities emerging from climate change and the policies which will result from the December 2015 COP21 Paris climate talks and the United Nations Climate Summit in September 2014, both of which CalSTRS participated in and fully support.
“We’ve seen how market forces have played a role in the decline of coal companies and in the value of their reserves and we intend to protect the portfolio from similar future impacts to a broader carbon market,” said CalSTRS Investment Committee Chair Harry Keiley. “Climate change remains at the forefront of global economic concerns and ongoing discussions, and CalSTRS is investing its resources and influence behind the inevitable transition to a low-carbon, climate-resilient future.”
By underweighting high greenhouse gas emitters and fossil fuel reserve holders, the strategies are expected to benefit CalSTRS if carbon or emissions taxes become prevalent. The volatility of the low-carbon index is expected to be comparable to that of the capitalization weighted index, while offering a significant reduction in exposure to carbon emissions and fossil fuel reserves. Also, as the global economy shifts to a low-carbon footprint, portfolios that have proactively reduced their carbon exposure are better positioned to outperform the broad market.
“This action is the result of highly detailed discussions over a good deal of time that we feel could not just protect us from losses in a transition to low-carbon but position us to generate better returns than more carbon-intensive portfolios in the long-run,” said CalSTRS Investment Committee Vice-Chair Tom Unterman. “The process by my colleagues on the CalSTRS board and our excellent staff, was deliberative, meticulous in its design, and has resulted in what I believe to be a valuable asset for the portfolio and ultimately, for the benefit of California’s educators.”
The MSCI ACWI Low-Carbon Target passive index portfolio will be internally managed by the CalSTRS Global Equity investment staff and implementation will be phased in beginning with U.S. equity followed later by developed markets and then eventually emerging markets.
The California State Teachers’ Retirement System, with a portfolio valued at $188.8 billion as of May 31, 2016, is the largest educator-only pension fund in the world. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans. CalSTRS also provides disability and survivor benefits. CalSTRS serves California’s 896,000 public school educators and their families from the state’s 1,700 school districts, county offices of education and community college districts.