CalSTRS Green Initiative Task Force Report Evaluates ESG Risks
Each asset class presents methods used to identify and evaluate environmental risks.
WEST SACRAMENTO, Calif. (Feb. 8, 2018) – The California State Teachers’ Retirement System presented its 11th annual Green Initiative Task Force Report yesterday at the Teachers’ Retirement Board Investment Committee meeting. The report highlights CalSTRS environmental-themed investments and environmental risk-management efforts.
Beginning with the 2015 report, the CalSTRS Green Team identified four initiatives to achieve its goal of incorporating environmental considerations into investment risk management and opportunity capture.
Initiative One addresses staff’s recognition that, in order to design tools to mitigate risk, they need to continually seek educational opportunities. Green Team members attended the McKinsey & Company Sustainability & Resource Productivity Summit to learn how cutting edge research in areas such as resource economics, materials science and ecosystem management play into investment strategies. Staff also stays current by participating in the Ceres Investor Network on Climate Risk and Sustainability and PRI. They also participate on the board of The Green Bond Principles and joined and chair the Sustainability Accounting Standards Board Investor Advisory Group in 2017.
“As a large, diversified global investor, CalSTRS needs to be on top of myriad environmental risks our portfolio is exposed to.”
Christopher J. Ailman
CalSTRS Chief Investment Officer
“As a large, diversified global investor, CalSTRS needs to be on top of myriad environmental risks that our portfolio is exposed to,” said Chief Investment Officer Christopher J. Ailman. “This report demonstrates how the tools and techniques we’ve developed to mitigate risks in every asset class have benefited our bottom line.”
When any manager, internal or external, is making an investment decision on behalf of CalSTRS, they must integrate environmental risk factors into the investment management process, which is the basis for Initiative Two.
The report identifies 10 methods that CalSTRS uses to incorporate risk factors. For instance, the Inflation Sensitive Portfolio, at over $2 billion, used four environmental integration methods: 21 Risk Factor Investment Management Agreement, Investment Advisory Boards, Commodity Risk Analysis and Environmental Impact Assessment to invest $243 million in solar, wind and other renewable power generation assets.
“What this report really does well is to detail how deeply integrated ESG risks and opportunities are across CalSTRS’ asset class portfolio management,” continued Mr. Ailman. “And it reflects the fact that our asset allocation is dedicated to ESG-themed investments.”
CalSTRS commitment to purchasing green bonds typifies the work being done to address Initiative Three—improving the ability to increase allocations to environmental-themed investments. CalSTRS’ Fixed Income asset class, with a portfolio of nearly $31 billion, has over $254 million in green bond holdings. The proceeds of these bonds go to projects that include financing hybrid/electric vehicles, climate change mitigation, renewable energy generation, and water management.
Initiative Four—the integration of environmental considerations into asset allocation processes—is exemplified by the Green Team’s participation in Mercer’s climate change asset allocation study. One study result led to CalSTRS’ $2.5 billion commitment and initial $1.3 billion investment, in the U.S. market, in MSCI ACWI Low-Carbon Target Index through the Global Equity Portfolio. Over time CalSTRS plans to invest an additional $1.2 billion between non-U.S. developed markets and emerging markets.
The California State Teachers’ Retirement System, with a portfolio valued at $225.3 billion as of December 31, 2017, is the largest educator-only pension fund in the world. CalSTRS serves California’s more than 933,000 public school educators and their families from the state’s 1,700 school districts, county offices of education and community college districts. After more than 25 years of service and with a median retirement age of 62.9, CalSTRS members’ average monthly pension is $4,475—with no Social Security eligibility. A hybrid retirement system, CalSTRS administers a combined traditional defined benefit, cash balance and voluntary defined contribution plan. CalSTRS also provides disability and survivor benefits.
See how CalSTRS demonstrates its strong commitment to long-term corporate sustainability principles in its annual Global Reporting Initiative sustainability report: Global Stewardship at Work.