California Pension Fund Seeks to Halve Exposure to Carbon Emitters

CalSTRS will move 20% of its public equity portfolio to a passive, low-carbon strategy.

The California State Teachers’ Retirement System plans to reduce its holdings by 50% in greenhouse-gas-emitting companies by 2030. This will involve ditching some heavy fossil fuel users.

The pension plan’s board intends to achieve a net-zero portfolio by 2050, if not sooner, and it moved this week to refine its strategy to do so. As part of that effort, CalSTRS will designate 20% of its public equity assets to track the MSCI ACWI Low Carbon Target Index.

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CalSTRS is aiming at public stocks to begin with because they have more environmental data available, CIO Chris Ailman explained in a news briefing. After that, the fund will tackle fixed income, and then move to private-market assets, which have the least amount of accessible information.

The focus in divesting will be on companies’ levels of carbon emissions, Ailman said. The question is “who’s burning” the fuel, he added. The bulk of the divestments will be utility, transportation, cement and agriculture businesses, not oil and gas producers. Ailman noted that, when they’re drilling and pumping, energy producers don’t emit as much carbon as these other companies, other than when flaring off natural gas.

The pension program’s net-zero action comes amid the state legislature’s passage of measures imposing new regulations on oil and gas, and requiring that California cease putting carbon dioxide into the atmosphere by 2045.

In an analysis of its portfolio in March, CalSTRS said its exposure to fossil fuel companies amounted to $4.1 billion, which is a little over 1% of its current $312 billion portfolio.

Asked about state governments in Texas, Florida and other Republican-led states that ban investment firms they think oppose fossil fuel companies, Ailman remarked that those actions were “disheartening.”

He said he tells his red-state counterparts that climate-minded investing is a long-term proposition intended to limit business risk from environmental calamity. Ailman said CalSTRS cares about companies beyond “91 days of earnings,” and is more concerned about “91 months and 91 years.”