As some state pension plans shy away from climate-related investments, the California Public Employees’ Retirement System is going deeper.
On Tuesday, the $501.9 billion pension plan announced some of the early steps it has taken toward achieving the sweeping climate change investment plan it announced in November. These steps will amount to nearly $10 billion in new investments.
CalPERS plans to commit $5 billion in public equity investments to a customized climate transition index. The index will evaluate the risks and opportunities in energy transition investments.
Beyond this commitment, CalPERS has committed more than $1.1 billion to nine private investments. These are in sectors that support energy production and distribution and freight and supply chain optimization. The pension fund is also reviewing $3.6 billion worth of other private market opportunities, some of which are expected to be finalized in the coming week.
"The CalPERS Climate Action Plan is designed to make our pension fund the global partner of choice in climate investing," said Peter Cashion, managing investment director of the CalPERS sustainable investments program in a statement. "To do that, we need a diverse set of investments and tools to generate the excess returns that are achievable during this historic transition to a low-carbon future."
These are some of the first tangible steps CalPERS is taking toward investing $100 billion in climate solutions by the end of 2030 — a plan announced by CalPERS in November. This plan involves more than doubling CalPERS’s contributions to climate-related actions over the next six years. The fund had about $47 billion invested in climate solutions before the new program.
The pension fund expects that these efforts will decrease the carbon intensity of its portfolio by at least 50 percent.
The pension will focus on three areas of climate change investments. Mitigation investments involve renewable energy like solar and wind power, carbon capture and storage technologies, and waste management. Adaptation strategies include water management to navigate droughts and floods, agriculture adaptation to weather the effects of climate change, and disaster risk reduction. Finally, transition assets include climate friendly operations, sustainable fuel development, and renewable energy sources.
CalPERS has been working toward a climate transition for years. In 2019, the pension was a founding member of the United Nations' Net Zero Asset Owner Alliance. This commitment involves transitioning investment portfolios to net zero greenhouse gas emissions (GHG) by 2050.
