Board Member Responds to Calls for Divestment
Lisa Middleton, a member of the CalPERS board, was quick to respond to the demands for divestment. As the nearly 10-hour meeting drew to a close, she acknowledged that while the system’s approach to responsible investing might share a philosophical alignment with concerns raised by the public, it often diverged in practical application. “With deep respect to each one of them, they believe divesting will somehow achieve policy change and results,” Middleton remarked. She referenced the extensive research conducted over the years, suggesting that merely withdrawing from an investment does not necessarily lead to effective climate action. “What is achieved from simply walking away from an investment, as opposed to what is achieved by engagement?” she questioned, emphasizing the need for academic insights to support the idea that divestment alone might not effectively address climate risks.
CalPERS’ Climate Action Strategy
CalPERS has formulated a climate action strategy aiming for $100 billion in targeted investments by 2030, positioning it as a response to environmental challenges. The organization’s leadership has expressed concerns that divesting could actually introduce risks to its investment portfolio. During the meeting, Middleton reiterated the board’s commitment to fulfilling its fiduciary responsibility to ensure retiree benefits, even within the realm of climate investments. “All of this has to come back to performance,” she stated. “It’s critical that we demonstrate for these investments, in comparison to benchmarks of competitors as well as other assets, that we’re producing results.”
Sustainable Investment Insights
Peter Cashion, the managing director for sustainable investments at CalPERS, shared insights during his presentation about the potential for climate solutions assets to outperform in a challenging political landscape. He acknowledged the existence of obstacles, stating, “Are policy changes leading to headwinds? Clearly, there are some negatives on the climate front. These are real. We don’t downplay them.” Staff members reported that since November 2023, the pension system has committed over $7 billion to private funds focused on climate initiatives. Additionally, the sustainable investments team has collaborated with investment staff to create a new framework for screening private market investments, incorporating environmental, social, and governance (ESG) factors and labor principles.
Future Integration and Performance Goals
Looking ahead, Cashion informed the board that the sustainable investments team aims to achieve full integration across the portfolio within the next 12 to 18 months. This includes enhancing collaboration with real assets and private debt teams to engage with emerging and diverse investment managers. However, staff noted that performance data for private market investments under this revised strategy is still not providing “meaningful information,” primarily due to J-curve effects and the early-stage nature of some firms not yet drawing down capital. CalPERS has set a target to reduce the carbon intensity of its portfolio by 50% by 2030, and recent reports indicate an 11% year-over-year decrease in emission intensity, alongside a slight reduction in absolute emissions. “We’re on track,” Cashion affirmed. “But I will caveat that it’s not a straight line in investing. I will say it’s notable to see this progress at a time when the opposite is happening in the market. It says a lot about the system’s commitment to sustainability.”
