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:
- Managing and reducing emissions in the portfolio.
- Influencing policy makers, companies and financial markets to speed up the global low-carbon transition.
- Increasing investments in climate solutions.
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 allocations
We’ve allocated $12.5 billion as of December 21, 2023 as part of our two-year implementation plan to allocate 20% of our Public Equity Portfolio to a low-carbon target index to manage risk and reduce emissions by approximately 14%. Additionally, the Teachers’ Retirement Board approved reducing emissions in the corporate credit portion of the Fixed Income Portfolio by 12% while preserving expected returns.
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
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:
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:
