How California’s pension fund is confronting climate change

Climate change is upending life around the world. Flooding, fires, and freezes, droughts, tornadoes, and disasters once thought to be extraordinary seem to have become commonplace.

A prime example: the recent California blackouts. 

Pacific Gas & Electric (PG&E), the state’s largest for-profit utility, cut power to millions of customers in an attempt to prevent a repeat of the state’s devastating 2018 firestorms. Those wildfires propelled PG&E into bankruptcy, sinking its stock price and costing investors millions.

Among the casualties are pension funds including the California Public Employees’ Retirement System, or CalPERS, which rely on investment returns to fund the majority of people’s retirement income.

When it comes to solutions, the time for talk is over. The need for action is now. 

California’s public employees are immediate and long-term heroes. Our first responders are on the front lines, saving lives and communities. The retirement savings of 2 million CalPERS members is being leveraged to provide retirement security and to meaningfully address climate issues that threaten the financial bottom line of the businesses we invest in.

The foundation of this work is a commitment to building lasting partnerships with solutions that strengthen the global economy and our environment. You can’t view them separately.

Government, civil society, consumers, companies, and investors are stepping up and working together. It’s not an either-or situation. It’s all of the above.

CalPERS is using its voice, shareowner votes, and investment dollars to minimize climate risk to our portfolio and investments while teaming up with others to ensure we see action, not just words. 

There are three key areas of focus: advocacy, engagement and integration.

Advocacy: CalPERS works with policymakers in support of regulatory guard rails that provide safety and soundness in markets. This is why we continue to back plans that call for holding down the overall increase in temperatures and why we advocate for putting a price on carbon and maintaining reasonable air quality standards. 

With this meaningful action by policymakers, we can reach the goal of limiting global warming, as California has demonstrated through the leadership of Govs. Arnold Schwarzenegger, Jerry Brown and Gavin Newsom. Our comprehensive approach includes joining the United Nations Global Investors for Sustainable Development Alliance as one of our advocacy projects.

Engagement: CalPERS exercises its rights and responsibilities as an investor in the companies that emit greenhouse gases. We conducted extensive research that concluded that among the more than 10,000 public companies in which we are an investor, only about 100 are responsible for the bulk of global warming emissions. 

We co-founded a coalition called Climate Action 100+, which today is the world’s biggest shareholder activism project with $35 trillion in assets, to align our fellow investors and then work in partnership with those companies to reduce emissions. 

Major companies including Shell and Nestle, and utilities such as Duke Energy, AES and Excel, cement companies such as Heidelberg, the world’s largest coal exporter Glencore, and shipping giant Mueller Maersk have created plans to reduce emissions and maintain sustainable business models.

Through this collaborative approach, CalPERS is helping to create opportunities for new investment in the transition to a low-carbon economy. Our shareholder position is driving positive change and helping to sustain our investments.

Integration: We are integrating climate risk across our $388 billion portfolio to determine how the issue impacts our ability to generate investment returns for the long term. 

In 2016, we made it clear to all of our investment managers, internal and external, that we have expectations on sustainability that must be integrated. We’re holding them accountable through our five-year strategic plan with a goal of 100% integration of environmental, social, and governance factors by 2021.

We are also working our way through each of CalPERS’ asset classes to map our carbon footprint so we know where the emissions are coming from, not just in companies listed on global stock markets, but also in our fixed income portfolio and real assets program, which includes real estate and infrastructure. 

Again, we are part of strong, international coalitions, including the United Nations’ Net Zero Alliance, which represents $2 trillion in assets, aligned in an effort to use the power of capital to incentivize sustainable practices and create strong investment opportunities.

We must continue to mitigate risk to our portfolio, including risks associated with climate change, so that our investments can thrive and we can continue to pay the benefits California’s public servants have earned. 

The world can learn from California’s experience, and CalPERS is proud to be part of this historic effort.

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Marcie Frost is chief executive officer of the California Public Employees’ Retirement System, Marcie.Frost@calpers.ca.gov. She wrote this commentary for CALmatters. To read her past commentary for CalMatters, please click here.