CalSTRS, the largest educator-only pension fund in the world, with $311.5 billion in assets, released its’ ninth annual sustainability report for fiscal year 21-22.
The system’s defined benefit program was 73% funded as of the end of fiscal year 2022, on June 30, 2022, and on schedule to reach full funding by 2046, under current actuarial assumptions. When the funding plan was adopted in 2014, it was projected at the time that the funded status would be 66.6% on June 30, 2022, due to a lower interest rate assumptions and the unforeseen strong performance of equities and financial assets from 2014 to present. According to the report released in the beginning of February, “the funding goal reflects a shared commitment to ensure the long-term sustainability of the Teachers’ Retirement Fund by state politic bodies, current teachers, and residents of the state of California.”
The nature of the CalSTRS population adds a challenge to achieving actuarial full funding, as that most of the of plan participants are female and live longer than the average individual in the United States. The oldest CalSTRS participant was 109 years old in 2022, according to the report.
Adding more significance to CalSTRS’ funding level is the fact that CalSTRS members do not pay into Social Security and therefore do not receive a Social Security benefit for CalSTRS-covered employment. In addition, that the report said members who retired in fiscal year 2021–22 received, on average, benefits matching 54% of their highest salary.
In September 2021, the Teachers’ Retirement Board committed CalSTRS to achieving a net zero portfolio by 2050 or sooner, in response to climate change, in order to “preserve a livable planet and enhancing the long-term value of the pension’s investments.”
“Our long-standing focus on sustainability and resiliency served us well last fiscal year and sets us up for long-term success,” said Cassandra Lichnock, CalSTRS chief executive officer, in the press release accompanying the annual CalSTRS sustainability report “We constantly adjusted to meet each unprecedented challenge on behalf of our members, as we worked through soaring inflation, the COVID-19 pandemic, geopolitical turmoil, and the many floods and wildfires related to climate change.”
Achieving “net zero” by definition is when the amount of greenhouse gases emitted by humans gets offset by the amount taken away, either by natural means such as plant life, or by technological based carbon capture and storage. Achieving “net zero” for CalSTRS means that companies in CalSTRS’ portfolio will not emit any greenhouse gases unless they are offset by reductions within the portfolio.
In 2022, the Teachers’ Retirement Board committed to four additional measures: “reduce greenhouse gas emissions across the portfolio by 50% by 2030; incorporate a comprehensive analysis of greenhouse gas emissions into investment decisions; allocate 20% of the Global Equity Portfolio to a low-carbon index to help reduce emissions; and integrate various climate-related scenarios into CalSTRS’ study of asset allocation and liability management to help guide investment decisions.”
Into 2023 the pension plans to “reduce portfolio emissions in a phased manner over time, escalate corporate and policy-related engagement activities in the broader economy, and define low-carbon investments and opportunities to increase investments that meet our risk-return goals.”
“Our long-standing focus on sustainability and resiliency served us well last fiscal year and sets us up for long-term success,” said Cassandra Lichnock, CalSTRS chief executive officer, in the press release of the unveiling of the annual CalSTRS sustainability report “We constantly adjusted to meet each unprecedented challenge on behalf of our members, as we worked through soaring inflation, the COVID-19 pandemic, geopolitical turmoil, and the many floods and wildfires related to climate change.”
A part of fostering long-term sustainability for CalSTRS is being representative of the large demographics of its’ members, through both representation at various organizational and in the boardroom. The current staff of the CalSTRS employment base is 58.5% female, representative that a majority of pension members in the system are female.
CalSTRS highlighted the importance of continuing their progress on their DEI initiatives into 2023. Succeeding in this, CalSTRS features an internal inclusion council in its operations. The council has executive sponsorship and meets monthly as part of an effort to create “positive, inclusionary change.”
In 2022, the inclusion council worked to guide CalSTRS’ existing diversity and inclusion programs, advancing and growing internal initiatives; with efforts focusing on “addressing competence, dignity, organization development, and social justice,” while posing an internal guiding question of what “equity” exactly means to CalSTRS. The report conveyed that the council looked at best practice organizations, legal definitions and other private and public state agencies’ definitions and policies.
CalSTRS Moves to Lower Holdings of Carbon Emitters
CalSTRS Plans to Redefine ‘Diverse Managers’ and ‘Emerging Managers,’ in Accordance With New California Law
More Than 100 Investment Organizations Sign CFA’s Diversity Code
Tags: CalSTRS, CalSTRS Sustainability Report, Cassandra Lichnock, DE&I, ESG, Net Zero, Sustainability