ARKANSAS, Nov 04 (Future Headlines)- In a significant move, the California Public Employees’ Retirement System (CalPERS), the largest public pension system in the United States with assets totaling $444 billion, has unveiled a comprehensive plan to double its climate-focused investments to $100 billion by 2030. This initiative marks a substantial commitment to addressing climate change and aligning the pension fund’s investments with sustainability goals. The plan also includes considering the sale of stocks in companies with insufficient strategies for the energy transition. Here’s a detailed look at CalPERS’ climate investment plan and its potential impact.
The plan, driven by CalPERS’ commitment to addressing climate change and enhancing the sustainability of its investments, has been formulated to achieve several key objectives. CalPERS will more than double its climate-focused investments, targeting $100 billion by 2030. This significant increase reflects the fund’s belief in the potential of investments in companies and technologies aligned with climate goals.
A primary goal is to cut in half the “emissions intensity” of CalPERS’ portfolio. Emissions intensity measures the amount of emissions generated relative to the total output. This move demonstrates the fund’s commitment to reducing its carbon footprint and environmental impact.
The additional investments will be directed towards companies involved in emissions mitigation and those working on building more resilient infrastructure to adapt to the challenges posed by climate change. These investments will span different asset classes, ensuring diversification within the climate-focused portfolio.
CalPERS’ climate investment plan is founded on several key principles and expectations. fund sees significant investment opportunities arising from the global shift towards a lower-carbon economy. As businesses and regulators continue to focus on limiting global temperature increases, CalPERS believes these opportunities will yield favorable returns on investments.
New laws in California, home to CalPERS, now require greater corporate transparency and disclosure regarding climate-related matters. This legislative support for environmental goals bolsters the case for climate-focused investments. Additionally, proposed legislation may require state pension funds to divest from fossil fuel stocks, though CalPERS opposed this idea in March 2023.
CalPERS plans to evaluate companies’ readiness to navigate stronger climate regulations and changing consumer demand. Key considerations include whether a company’s climate plans align with the Science Based Targets initiative, which is supported by the United Nations and various business and environmental groups. For companies deemed unprepared or laggards, CalPERS will consider tactical adjustments to its investments.
The pension fund aims to strike a balance between addressing climate-related concerns and delivering strong returns on investments. While CalPERS is committed to sustainability, it views divestment as an “inelegant solution” and seeks a more nuanced approach to achieve its climate goals.
CalPERS’ staff will present the comprehensive climate investment plan to the board’s investment committee for feedback on November 13. While formal approval is not required, the plan’s presentation will provide an opportunity for board members to assess and discuss the proposed initiatives.
California Treasurer Fiona Ma, the only CalPERS board member who supported divestment at the March vote, has expressed eagerness to hear more about the new climate investment plan, signaling a willingness to consider alternative strategies to address climate concerns.
CalPERS’ plan is reflective of a broader trend among public pension funds and institutional investors to align their investments with climate and sustainability goals. In 2021, the state of Maine directed its Public Employees Retirement System to halt new fossil fuel investments and divest current holdings by early 2026, in line with fiduciary obligations. This move to divest from fossil fuels could entail challenges, as much of the exposure to fossil fuels is often through private market holdings that may need to be sold at a discount, potentially resulting in significant financial losses.
Reporting by Emad Martin