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Path to net zero

We believe climate change is one of the greatest threats to our future, with undeniable links to business and financial investments. Climate change impacts health and safety, the environment and the global economy, which puts the CalSTRS Investment Portfolio at risk. Our mission is to support the retirement security of California’s public school educators. Virtually all companies and assets in our portfolio are affected by climate risk and must prepare for climate change.

In September 2021, the Teachers’ Retirement Board pledged to achieve net zero greenhouse gas emissions across the CalSTRS Investment Portfolio by 2050, or sooner. The Board later adopted a science-based interim goal of reducing emissions from the portfolio by 50% by 2030.

Net zero means the amount of greenhouse gases emitted is offset by the amount taken away.  The Board's pledges acknowledge the importance of the climate change challenges impacting the world and helps ensure we remain resilient and sustainable.

These actions integrate our net zero strategy across the CalSTRS Investment Portfolio in a total fund approach. This strategy has three pillars:

  1. Managing and reducing emissions in the portfolio.
  2. Influencing policy makers, companies and financial markets to speed up the global low-carbon transition.
  3. Increasing investments in climate solutions.
Managing and reducing emissions 

Managing and reducing greenhouse gas emissions

The first pillar of our net zero strategy is managing and reducing portfolio emissions, which are the greenhouse gases emitted by the companies and assets we invest in on behalf of California’s public educators. We do this by using science-based tools to measure emissions in our portfolio. Our goal is to align our emissions reductions with the Paris Climate Agreement. We report these measurements regularly and use them to inform our investment decisions and our priorities for influencing companies and policy makers.

We will continue to focus on stewardship and engagement efforts and investing in climate solutions that will further reduce greenhouse gas emissions and risks related to our portfolio.

    Recent activities

    The Global Equity team continues to implement an emissions reduction strategy by allocating 20% of the Total Public Equity portfolio to a low-carbon index, approved at the September 2022 Investment Committee meeting. As of February 29, 2024, approximately $17.5 billion or 12.8% of the portfolio is being managed internally against the low-carbon index. Staff estimates this has yielded portfolio emissions reductions of approximately 9.4%.

    The Fixed Income team is implementing an emissions reduction strategy through a 15% low-carbon credit-related index optimization strategy, approved at the May 2023 Investment Committee meeting. The indices are optimized each month to reduce emissions incrementally while maintaining parent index metrics and minimizing additional active risk. As of February 29, 2024, the strategy has enabled the team to reduce Fixed Income portfolio emissions by approximately 11% while maintaining active risk within modeled expected levels.

    Using our influence 

    Speeding up the transition

    The science is clear: To ensure the future of our planet, the economy must move toward net zero greenhouse gas emissions. And to achieve our net zero goals, we need the companies in our portfolio to speed up emissions reduction efforts. We use our influence to promote an accelerated transition in three ways: voting on shareholder proposals, engaging with companies, and public policy and regulatory advocacy.

    Recent activities

    Staff is engaging and encouraging portfolio companies to join the Oil & Gas Methane Partnership 2.0 (OGMP 2.0). OGMP 2.0 is a United Nations Environment Program initiative that requires member companies to measure their methane emissions (as opposed to estimating them), and to set emissions reduction targets. Since staff began engaging oil & gas companies on OGMP 2.0 at the beginning of 2023, 15 companies have joined, including Exxon Mobil Corporation and Chevron Corporation, and more than 100 companies in the CalSTRS portfolio are eligible to join.

    At its January 2024 meeting, the Teachers' Retirement Board’s Investment Committee approved changes to the CalSTRS Corporate Governance Principles and Stewardship Priorities for the next three-year cycle.

    The updated Corporate Governance Principles incorporate changes in four areas:

    • Standardized global sustainability disclosure standards.
    • Boards of directors' responsibilities, including employee wellness factors, such as workforce diversity, pay, benefits, hiring, retention and business culture.
    • Inclusion of environmental, social and governance (ESG) metrics in executive compensation.

    As part of the 2023 proxy season, CalSTRS increased the scrutiny of our votes against boards that are not appropriately managing and addressing sustainable business practices. We voted against the boards of directors at a record 2,035 global companies because they did not provide necessary climate risk disclosures. Disclosure is important for investors to appropriately assess the financial risk climate change poses to a company’s long-term profitability. 

    Recent stewardship engagements

    Examples of our engagements include: 

    Infographic about climate action contributions, highlighting commitments from Dominion Energy, ENEOS, and Southern Company to reduce emissions.
    Investing in climate solutions 

    Recent activities

    The SISS Private Portfolio, which was approved by the Investment Committee in 2021 to create a systematic platform to expand investments in low-carbon solutions, has deployed over $2 billion to date across a broad risk-return spectrum.

    The private asset classes have been working to increase exposure to low-carbon solutions. Examples of these types of efforts include:

    • A $350 million investment that established a strategic partnership with a sustainable infrastructure company that provides permanent capital (both debt and equity) to finance sustainable power generation, carbon free mobility (e.g., school bus electrification), and water and waste facilities across the U.S.
    • A $50 million commitment in a 339-mile transmission line that will deliver up to 1,250 MW of renewable power from Québec to New York City, representing approximately 20% of New York City’s total daily power consumption and estimated to reduce CO2 emissions by 3.9 million tons annually, or roughly equivalent to removing 44% of New York City’s vehicles.
    • CalSTRS and strategic partner, LCOR, a multifamily developer focused on the Northeastern U.S., are finishing construction on a two-tower, 400+ unit waterfront residential complex in South Brooklyn (Coney Island), New York. The Coney Island development epitomizes a broader shift toward greener and more environmentally conscious development. The project will be 100% electric and features New York City’s largest geothermal system, providing heating, cooling, and domestic hot water to the project. The project’s geothermal system will reduce carbon emissions by over 60% relative to other residential buildings equipped with conventional heating and cooling systems and will result in lower energy bills for its residents.

    Investing in climate solutions

    We focus on investing in companies and assets that meet our investment return objectives and reduce portfolio emissions, such as producing renewable energy or constructing and managing buildings that meet the highest standards for energy efficiency.      

    Since 2004, we have been actively integrating climate-oriented solutions into our portfolio and have invested more than $20 billion in low-carbon solutions.

    Examples of these investments include: 

    A graphic showing significant low-carbon investments in global equity, inflation-sensitive assets, and real estate, totalling billions of dollars.