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Pension Funds

CalSTRS’ investment committee to study implications of low-carbon economy

CalSTRS' investment committee on Wednesday voted to study the implications of a transition to a low-carbon economy in the future and its implications for the $227.8 billion pension fund in fiscal year 2020.

The proposal to add the study to the committee's plan of projects for fiscal year 2020 alongside its plan to monitor the implementation of its collaborative investment model across its portfolio was made by Harry M. Keiley, the investment committee chairman, and Joy Higa, investment committee member.

"The two biggest issues to come before us in the years to come are climate change and China," Mr. Keiley said.

The issues of climate change and climate risk, and the opportunities and risks caused by climate change on a long-term basis are important to consider, he said.

"What we are talking about is the risk of the status quo," Mr. Keiley told the committee.

"We need some education," said Christopher J. Ailman, CIO of the California State Teachers' Retirement System, West Sacramento, at the meeting.

CalSTRS officials need to review the pension plan's exposure, Mr. Ailman said. He added that officials at the $197.3 billion New York State Common Retirement Fund, Albany, are looking at the pension fund's exposure and officials at the $186.3 billion New York City Retirement Systems are starting to review the issue of climate change's long-term impact on their portfolios.

The staff could conduct an education session on the issue as early as the investment committee's off-site meeting in October.

"We've been a passive shop," Mr. Ailman said. However, he added that he thinks the markets have mispriced climate-change risk.

"We will have to make more active decisions on positioning the portfolio with the risk of being wrong or the risk of being too early … which is as bad as being wrong," Mr. Ailman said.

CalSTRS' investment committee also approved adding a carbon pricing statement to its corporate governance principles to supports its multiple climate change-related initiatives.

"As a diversified global investor, we need to understand the transition's potential impacts and consider actions we can take to mitigate risk and identify related investment opportunities," the statement said in part. "CalSTRS believes in the importance of establishing a stable and clear carbon pricing framework that appropriately prices the externalized cost to the global economy from greenhouse gas emissions."

CalSTRS' proxy votes and engagement with companies will reflect CalSTRS' "support for global carbon pricing mechanism," the statement added.