The $306 billion California State Teachers' Retirement System's investment committee approved a strategy reducing by 12% the carbon footprint of the internally managed portion of its $11 billion credit portfolio.
CalSTRS made the move as part of its pledge to reach net-zero portfolio emissions by 2050 or sooner. In August, CalSTRS adopted a net-zero strategy for its global equity portfolio, with officials planning to adopt a net-zero strategy across the total plan including private capital portfolios, "which will be tougher," noted Chris Ailman, CalSTRS CIO at Thursday's investment committee meeting. CalSTRS' global equity portfolio accounts for 39.4% of total plan assets
The majority, 90%, of the West Sacramento-based pension fund's credit portfolio is internally managed and invested primarily in investment grade, high yield and emerging market corporate bonds. The new low-carbon optimization strategy involves applying a low-carbon optimized index developed by its fixed-income index provider Bloomberg to 15% of its in-house credit portfolio that will reduce carbon emissions by 12%.
"Optimization is a fancy word for creating a computer program with low active risk and reduction in carbon," David Gold, portfolio manager for credit told the investment committee, said on Thursday. The 15% is just a starting point that can more easily be managed by staff, he said. CalSTRS' general investment consultant Meketa Investment Group assisted.
Separately, the investment committee revised some of its investment policies that includes transferring approximately $4.2 billion invested in the MSCI ACWI Low Carbon Target index as part of its sustainable investment & stewardship strategies portfolio to its global equity portfolio. After the LCTI assets are moved to global equity, the sustainable investment & stewardship strategies' public asset portfolio will be entirely actively managed.