US pension scheme’s “total fund plan” includes 2030 target and will be updated in line with scientific analysis.
Following on from its net zero commitment last year, the board of the California State Teachers’ Retirement System (CalSTRS), an educator-only pension fund, has adopted a “total fund plan” to meet its target.
The new plan includes four initial measures: setting a 50% portfolio emissions reduction by 2030 target; incorporating emissions reduction considerations as part of the fund’s risk and turn analysis; allocating 20% of the public equity portfolio to a low-carbon index to reduce emissions and manage active risk; and integrating future climate change scenarios into CalSTRS’ asset liability modelling framework.
CalSTRS, which has US$306.7 billion in AUM, will review its decarbonisation targets and strategy annually, adjusting in line with the latest data, market fluctuations and science-based advancements.
“We need to escalate our work in reducing emissions, expand our investments in low-carbon solutions and use our influence to accelerate the global economy’s transition,” said Board Vice Chair Sharon Hendricks.
“CalSTRS is taking bold measures to mitigate the risk climate change poses to our fund, while prioritising our plan to reach full funding by 2046 and fulfilling our promise to California’s teachers.”
Prior to unveiling its net zero commitment last September, CalSTRS started investing in a low-carbon public equities index in 2016. In the following year, the asset owner announced it was excluding thermal coal from its investment portfolio.
More recently, CalSTRS warned investee companies that it would vote against directors that haven’t set appropriate decarbonisation targets and would vote in favour of shareholder resolutions calling for corporates to commit to net zero by setting science-led decarbonisation targets.
The asset owner has also funded two low-carbon ETFs, the BlackRock US Carbon Transition Readiness ETF and the BlackRock World ex US Carbon Transition Readiness ETF. Each fund aims to address market risks and capitalise on opportunities associated with the global transition to net zero, tracking the performance of the broad equity market.
CalSTRS’ Board Chair Harry Keiley said: “Taking these interim actions to reduce emissions in our portfolio is a profound step forward and underscores our commitment to considering the impacts of climate change fully and systematically as we manage our fund on every level.”
The fund has previously been under pressure to divest from carbon-intensive oil and gas companies, facing a legislative hearing in May following an accusation by climate activist group Fossil Free California that CalSTRS had “wildly exaggerated” the costs of divesting fossil fuel holdings.
However, like other asset owners, CalSTRS has backed engagement over divestment, citing its involvement in the appointment of three alternate, climate-focused directors to the board of oil and gas major ExxonMobil last year.
Meketa Investments Group, the CalSTRS board’s investment consultant, said that the new measures “represent a well-structured approach that embodies a best-fit integration of a net zero strategy into CalSTRS’ overall investments”.
The firm added: “CalSTRS will be well-positioned to consider potential adjustments to the implementation of its net zero pledge that might be made to best support the retirement security of CalSTRS’ beneficiaries.”