Senate Bill 1173 (Gonzalez) would prohibit CalSTRS from making additional or new investments in fossil fuel companies but risk teacher pension security
Statement | Karen Doron
WEST SACRAMENTO, Calif. (March 7, 2022) – At its March 2022 meeting the Teachers’ Retirement Board (board) voted to oppose Senate Bill 1173 (Gonzalez), which would prohibit CalSTRS from making additional or new investments in fossil fuel companies and require divestment from such investments by July 1, 2027. The board has a policy to oppose legislation that restricts or infringes on the plenary authority of the board to administer its retirement plans and infringes on the investment authority of the board. A majority of the board (nine) voted to oppose the measure with one abstention and two votes not in favor of opposing the bill.
“Our policy is unequivocal that we oppose bills that force divestment,” said Teachers’ Retirement Board Chair Harry Keiley. “We all want to get to the same place, to take powerful action to address climate change. We can do that and ensure a secure retirement for California’s hard-working teachers through our plan to leverage our relationships, coalitions and investments.”
SB 1173 analysis
In its analysis of SB 1173, CalSTRS determined its exposure to fossil fuels by including companies that have fossil fuel reserves for energy application and sales being more than 1% of revenue. CalSTRS invests in 174 companies with a combined market value of approximately $4.1 billion that meet this definition. Fossil fuel divestment, combined with existing CalSTRS divestments, would create roughly a 1% tracking error, or deviation from the benchmark. Potential costs resulting from a tracking error would put at risk the CalSTRS Funding Plan to reach full funding for California’s public educators. Any resulting costs would increase the unfunded liability and may also result in an increase in the state’s contribution to the Defined Benefit Program.
CalSTRS’ approach to climate change
CalSTRS believes climate change is one of the greatest threats to the future, with undeniable links to business and financial investments. The vast impacts of climate change threaten health and safety, our environment and the global economy, which put the CalSTRS Investment Portfolio at risk.
CalSTRS is focused on ensuring a secure retirement for California’s nearly 1 million working and retired public school educators. Climate change is about more than fossil fuel companies; our entire investment portfolio is affected by climate risk. Divesting from fossil fuels ignores the larger climate change risks to the CalSTRS portfolio. CalSTRS’ approach is more holistic and involves our entire investment portfolio, including measuring emissions, engaging directly with companies, working to expand government policies, and investing in solutions.
CalSTRS has been addressing climate risk in its portfolio for nearly 20 years. CalSTRS is aligned with the State of California in combatting climate change and worked closely with the state’s Department of Finance in the development of the California Climate Investment Framework. Our efforts to address climate risk are rooted in our promise of a secure retirement for California’s public school educators and their beneficiaries. In September 2021, the board gave further direction to address climate change by adopting a pledge to achieve a net zero portfolio.
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CalSTRS provides a secure retirement to more than 980,000 members and beneficiaries whose CalSTRS-covered service is not eligible for Social Security participation. On average, members who retired in 2020–21 had 25 years of service and a monthly benefit of $4,813. Established in 1913, CalSTRS is the largest educator-only pension fund in the world with $319.8 billion in assets under management as of January 31, 2022. CalSTRS demonstrates its strong commitment to long-term corporate sustainability principles in its annual Sustainability Report. For more information, visit CalSTRS.com.