Climate Change
As an investor in the global economy, the scale and multi-faceted nature of climate change presents a systemic risk to our portfolio. Climate change impacts investors like us in two key ways:
- Physical impacts (e.g. wildfires, extreme weather, sea-level rise, drought) can affect our fixed assets (e.g. real estate) and disrupt portfolio companies' supply chains and operations. Climate change's acute and chronic physical impacts can affect people's health, food security, migration, water supply, and other ecosystem services in ways that could bring heightened volatility to financial markets and harm economic growth.
- Transition risks, or shifts in policies, technologies, industries, and customers, due to changed climate norms or movement toward a lower-carbon economy, can affect the financial success of existing business models and industries. Our portfolio companies' long-term success depends on the degree to which they can successfully navigate these transitions.
Our Sustainable Investments Program leverages the best available science and tools to inform our investment decisions. With insights into the highest-value climate change-related risks and opportunities, we’re working to:
- Minimize the absolute risk from climate change to our portfolio through our engagement and advocacy.
- Understand the financial risks to our portfolio and prepare for the long-term changes that will accompany climate change with our research and integration efforts.
- Identify and focus on the largest opportunities for financially-attractive emission reductions across the fund.
- Advocate for policies that can drive the transition to a thriving low-carbon global economy for our investments.
Below you’ll find more information on our climate change-related activities.
Physical risks: Scientists have developed climate models to forecast the frequency, intensity, and location of impacts from climate change over time. We utilize research on the links between these models and financial risks and opportunities to develop investment insights.
Transition risks & climate-related risk reporting: To understand the concentration of carbon emissions in our portfolio, we measure the carbon footprint of each asset class. In compliance with Senate Bill 964, this data is provided in CalPERS’ Response to the Taskforce on Climate Related Financial Disclosure (TCFD) and Senate Bill 964.
Opportunities: To enhance portfolio returns and reduce emissions, we seek to systematically identify, implement, and track economically attractive opportunities.
Through our Real Estate Energy Optimization (EO) Initiative (PDF), we’re helping transition our real estate portfolio toward carbon neutrality (a balance between emitting carbon and absorbing carbon from the atmosphere) where it adds value to investment performance.
The EO initiative seeks to:
- Reduce carbon intensity to help mitigate the systemic risk of climate change to the real estate portfolio and more broadly our Total Fund.
- Enhance returns and the long-term value of our investments through capturing energy cost savings.
- Improve the attractiveness of the assets to tenants.
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Since at least 2009, we've repeatedly weighed in on:
- Domestic and international policy in support of greater disclosure from companies on climate-related financial risks.
- Reduced fossil fuel subsidies.
- Regulation that prices carbon emissions.
- We advocate to the G7 and G20 for implementation of the Paris Agreement and for strengthening country commitments with the goal of limiting the global temperature rise to 1.5° above preindustrial levels.
- We supported the Investor Agenda statement, which encouraged governments to adopt and implement the specific policies needed to enable large-scale, zero-emission, climate-resilient investments.
- We regularly meet with and engage policymakers on legislation and regulation that may affect CalPERS Total Fund or our portfolio companies.
- We believe that pricing carbon emissions facilitates the transition to a low-carbon economy through market mechanisms, which is an investor-aligned approach. We support pricing carbon emissions at a meaningful level to effectively drive the transition to a low-carbon economy.
- We advocate for human capital and climate-related disclosure. We support proposed rules to require registrants disclose greenhouse gas (GHG) emissions and certain climate-related financial metrics in their registration statements and annual reports. Learn more by reading our Climate-Related Disclosures for Investors comment letter (PDF) to the Securities and Exchange Commission.
Research shows that global GHG emissions largely come from burning fossil fuels and land use change such as deforestation.
Climate Action 100+
After evaluating our public assets' carbon footprint in 2015, we discovered emissions were heavily concentrated. Out of the 10,000+ companies within our 2015 portfolio, only 80 were responsible for 50% of the GHG emissions. We recognized other peer asset owners likely had the same top emitters.
The future emissions (emission trajectory) created by these companies is critical to whether the global economy meets the Paris Agreement. Its goal is to hold the global temperature increase to well below 2 °C above pre-industrial levels, while pursuing efforts to limit it to 1.5 °C.
With this insight, we worked with organizations, such as Principles for Responsible Investment (PRI), Ceres, and Institutional Investors Group on Climate Change (IIGCC) to launch Climate Action 100+. It’s a five-year global initiative, now supported by hundreds of investors, representing trillions of dollars in assets, focused on:
- The world's top, publicly-traded, systemically-important carbon emitters.
- Companies with significant opportunity to drive the transition to a low-carbon economy.
Climate Action 100+ tracks the progress of focus companies against key indicators through regular progress reporting and benchmarking. Annual progress updates provide key information about the evolution and operation of Climate Action 100+.
We continue to serve on the Climate Action 100+ Steering Committee.
Partnerships are critical to our climate change strategy. They allow us to share experience, pool resources, and magnify our influence. As a member of global investment networks, such as the Principles for Responsible Investment (PRI) and Ceres, we've engaged companies on emissions reductions and disclosure of key metrics. We’ve transitioned from regionally focused activities to global initiatives such as those listed above.
| Partner | CalPERS' Role(s) |
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CDP Encouraging companies and cities to disclose environmental impact |
Member |
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Climate Action 100+ Ensuring the world's largest corporate greenhouse gas emitters take necessary action on climate change |
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UN Principles Responsible Investment Networking to incorporate ESG issues into decision making and ownership practices |
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Ceres Transforming the economy to build a sustainable future for people and the planet |
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Council of Institutional Investors Promoting governance policies that enhance long-term value for institutional asset owners and their beneficiaries |
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ESG Data Convergence Initiative (EDCI) Creating a critical mass of meaningful, performance-based, and comparable ESG data from private equity companies |
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International Corporate Governance Network Promoting effective global standards of corporate governance and investor stewardship |
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IFRS Sustainability Alliance Combining the SASB Alliance and the <IR> Business Network, this is the global membership program for sustainability standards, integrated reporting and thinking |
Active Member |
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United Nations Net Zero Asset Owner Alliance Allying investors committed to accelerating decarbonization in line with 1.5°C by 2050 |
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