CalPERS’ $60 billion investment in ‘climate solutions’ lacks environmental standards, transparency

In November the California Public Employees Retirement System announced it invested $60 billion in “climate solutions,” toward a goal of $100 billion by 2030. While the announcement highlighted several deals, the pension’s overall strategy remains shrouded in secrecy.

As the largest public pension in the U.S., what CalPERS does has major impact. Yet it does not disclose a complete list of its climate-focused investments, nor the criteria it used to select them. 

When asked how CalPERS defines climate investments, its staff points to a “taxonomy of mitigation, transition and adaptation” — meaning investments that reduce carbon emissions, support cleaner technologies for polluting businesses and help communities adapt to climate impacts.

This taxonomy captures the right themes but is a woefully sparse definition for a pension that prides itself on climate leadership. 

Climate finance around the world faces credibility challenges. Research has found climate dollars going to everything from airports to ice cream shops. 

CalPERS can and should do better. The Sierra Club and the California Common Good coalition have asked CalPERS to be more transparent and adopt science-based principles to guide its climate investment strategy. 

That became more important after research revealed CalPERS’ climate plan included $3.56 billion invested in fossil fuel companies, as well as in airlines, plastics manufacturers and tech companies.

CalPERS’ climate plan aims to not only reduce carbon emissions through its portfolio, but to reduce the risk that climate change poses to the pension fund. 

Risk reduction should be front of mind, as studies show pension funds are particularly vulnerable to the wide-ranging economic impact of climate change and could face declines in investment return of up to 50% by 2040. That would be a massive shock to all pensions working to deliver safe, secure retirements for beneficiaries.

What remains unclear is how CalPERS’ investments in polluting companies actually address climate risk. 

CalPERS has defended its fossil fuel outlay by emphasizing the investments are “small,” and “a green asset is a green asset.” That doesn’t cut it. The investments lack what is called “additionality” — they’re not new investments, and they don’t unlock resources for decarbonization. 

Simply put, holding investments in fossil fuel companies does not protect workers’ savings from the systemic risk of climate change.

A climate plan that counts anything with a whiff of “green” as a climate investment does not represent a commitment to allocating capital where it’s needed to scale clean energy solutions and stabilize markets. Every dollar invested in polluting companies — that isn’t being leveraged to drive change — is a dollar that could have been invested in reducing emissions and protecting communities. 

Fossil fuel investments do not belong in CalPERS’ climate solutions portfolio. 

By keeping its criteria for climate solution investments vague, CalPERS may think it is preserving flexibility to develop a cutting-edge strategy. But it is missing the opportunity to show how public money can be invested to proactively protect workers’ livelihoods, retirement savings and communities. 

CalPERS’ climate plan counts progress in billions of dollars, but it doesn’t measure the things that matter most, such as the amount of emissions reduced, communities served and clean energy deployed. 

System-level risks require system-level solutions. For a fund of CalPERS’ size and influence, that means using its leverage to mitigate the risks of climate change that threaten the economy and beneficiaries’ pensions. 

CalPERS can start by adopting science-based principles that set clear exclusions on what does — and does not — constitute climate investments, and by clearly defining strategies for mitigation, adaptation and transition. 

CalPERS should be applauded for identifying that climate change poses a clear risk to its beneficiaries’ savings and the entire economy. Many pensions have yet to follow suit. 

But it has yet to articulate a bold enough vision to effectively mitigate those risks.