“The board first heard about these efforts in July, and the Nov. 13 meeting is simply the next step,” Myers said. “The investment staff will take any direction provided by the board and fully anticipates coming back to the board as the details of the new plan get fleshed out.”
California Treasurer Fiona Ma, who sits on CalPERS’ board as well as the board of the $307.9 billion California State Teachers’ Retirement System, West Sacramento, said that she is “eager to hear more about this proposal and to discuss with the rest of the CalPERS board.”
“California leads the nation prioritizing people over profits and we must act now with all our collective resources to combat climate change,” Ma said. “With our planet heating up and billions of dollars lost to fire and flood damage, action is needed now.”
Under CalPERS’ plan, new investments will be made across asset classes in investment opportunities including mitigation, adaptation and transition away from fossil fuel investments.
Investments that help companies transition away from being relatively high carbon emitters will help reduce the carbon intensity of CalPERS’ portfolio, Cashion said.
As part of the plan, CalPERS officials will move beyond engagement and could underweight or exit an investment in a security if over time the company’s continued failure to present a credible net-zero plan or invest in the energy transition would create a financial investment risk, Cashion said.
Ma has long advocated for more aggressive climate action and this plan appears to fit that bill by crystalizing CalPERS’ plan to reach net zero through a structured, analytical framework to account for high-emitting companies in the portfolio that show little interest in working toward the world’s shared climate goals, a state treasurer’s office spokesperson said.
While CalPERS has not yet developed criteria for underweighting or exiting a security yet, fund officials will perform a financial analysis, modeling what the financial risk to investors would be should the company not decarbonize, Cashion said.
Some of the factors that would be considered include assigning a price under various scenarios for emitting carbon and consumer demand for companies not transitioning away from fossil fuels, including some consumers’ willingness to pay a premium for less polluting alternatives, Cashion said.
CalPERS would also take into consideration whether a company is investing in climate solutions such as an oil company investing in lower carbon assets, he said. Those types of investments are an indication of what the company will do about its carbon emissions in the future.
However, Cashion acknowledged that oil and gas companies are an important component of the economy, and they have produced positive returns. While the energy sector is likely to be profitable for years to come, those energy companies that do not factor in the energy transition will have less favorable financial prospects, he said.