CalSTRS expands reporting on climate risk management
Latest Green Initiative Task Force report is responsive to SB 964 requirements.
WEST SACRAMENTO, Calif. (December 31, 2019)–The California State Teachers’ Retirement System released its latest Green Initiative Task Force report which responds to California Senate Bill 964 (Allen) and aligns with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD).
“CalSTRS recognizes that the low-carbon transition impacts the performance of our Investment Portfolio across all companies, sectors, regions and asset classes,” said Investment Committee Chair Harry Keiley. “While the requirements of SB 964 may be new, this is the 13th annual report in which the fund has conducted detailed analysis and reporting of its environmentally focused investment activities.”
The latest Green Initiative Task Force report outlines CalSTRS’ integration of climate-related risks into its investment management process and details its significant corporate and public policy engagement activities. The report also contains the results of a portfolio carbon emissions exposure analysis.
Looking forward, CalSTRS is transforming its approach to climate risk management through its Low-Carbon Transition Work Plan.
Christopher J. Ailman
CalSTRS Chief Investment Officer
“Looking forward, CalSTRS is transforming its approach to climate risk management through its Low-Carbon Transition Work Plan,” said Chief Investment Officer Christopher J. Ailman. “The plan will position our portfolios to be adaptive and resilient and guide us in identifying opportunities to invest in climate solutions that meet our return expectations.”
The Task Force on Climate-Related Financial Disclosures was created in 2015 to develop voluntary and consistent guidelines that companies can use to provide information to investors, lenders, insurers and other stakeholders. The Green Initiative Task Force report uses the TCFD framework to report on CalSTRS’ governance, strategy, risk management, and metrics and targets pertaining to climate-related financial risks.
CalSTRS plays a leadership role in Climate Action 100+, a collaborative engagement effort of more than 370 global investors representing $35 trillion in assets under management, focused on the largest global emitters of carbon dioxide. Collective engagement from these global investors has led to industry-leading public commitments:
- Duke Energy has committed to a 50% reduction in greenhouse gas emissions by 2030 and net-zero emissions by 2050.
- Volkswagen committed to become climate neutral by 2050 and launch nearly 70 electric vehicle models by 2028.
- AES Corporation has committed to a 70% reduction in carbon intensity by 2030.
CalSTRS has multiple environmentally focused investments across asset classes:
- The Sustainable Investment and Stewardship Strategies Portfolio achieved a 10-year 13.54% net return beating its 10.71% benchmark.
- CalSTRS’ $2.68 billion Low-Carbon Index achieved a 10.51% net return, outperforming its benchmark by 46 basis points.
- Nearly 90% of CalSTRS’ directly controlled office buildings in its Real Estate Portfolio are Energy Star certified and have achieved LEED certification.
Emissions Exposure Analysis
Institutional Shareholder Services conducted an analysis of the CalSTRS Investment Portfolio’s emissions exposure, which indicated:
- The Fixed Income Corporate Bond Portfolio’s net emissions exposure is 15% less than the benchmark.
- The CalSTRS Public Equity Portfolio invests less in the energy sector compared to the benchmark, and the energy sector companies it invests in have lower carbon emissions profiles.
- CalSTRS’ Public Equity Portfolio and the Fixed Income Corporate Bond Portfolio are currently aligned with a 2º Celsius warming scenario until 2031 and 2033, respectively.
California Climate Policy Background
In 2018, California Governor Jerry Brown signed Senate Bill 964 (Allen). This legislation requires reporting and analysis of climate-related financial risk, and alignment of the fund with the Paris Agreement and California policy goals. The Paris Agreement calls for nations to come together to keep global warming below 2º Celsius.
In 2019, California Governor Gavin Newsom issued an executive order directing the Department of Finance to create a Climate Investment Framework to address public pension portfolio climate risks that aligns with their fiduciary responsibility. CalSTRS is working with the Department of Finance to develop the framework.
CalSTRS provides a secure retirement to more than 964,000 public educators whose CalSTRS-covered service is not eligible for Social Security participation. Members retire on average after more than 25 years in the classroom with a monthly benefit of approximately $4,475. Established in 1913, CalSTRS is the largest educator-only pension fund in the world with approximately $248 billion in assets under management.