CalSTRS' investment committee on Thursday approved allocating $2.5 billion of its equity portfolio to a low-carbon index strategy.
The approval makes the $188.8 billion California State Teachers' Retirement System, West Sacramento, one of the few pension systems in the U.S. to make such a commitment as part of efforts to address climate-change issues.
The $178.1 billion New York State Common Retirement Fund, Albany, made a commitment to a low-carbon index for $2 billion in equity assets late last year.
CalSTRS' allocation will be targeted to the MSCI ACWI Low Carbon Target index. CalSTRS officials expect most of the allocation to be internally managed.
Environmental advocates have called on CalSTRS and other pension funds to fully divest from fossil-fuel companies and at Thursday's meeting said the allocation was only a small step.
“It's only small relative to the size of our portfolio,” said Harry M. Keiley, investment committee chairman. CalSTRS has around a $100 billion equity portfolio.
Officials at CalSTRS and those of other pension funds have argued that holding such shares allows them to engage the companies to adopt better environmental practices.