CalSTRS Expected to Support Carbon Pricing

Plan will look at corporations’ policies on the issue as it examines their sustainability policies.

The investment committee of the California State Teachers’ Retirement System (CalSTRS) is expected to approve a policy in support of carbon pricing at its meeting scheduled for Wednesday.

The expected May 8 approval of the addition to the pension system’s corporate governance principles will address “CalSTRS belief that concerns about climate change and the transition to a lower carbon economy have the potential to impact the value of the investment portfolio,” shows agenda material for the meeting.

The material goes on to say that the pension system supports meaningful global carbon pricing mechanisms that appropriately prices the externalized cost to the global economy from greenhouse gas emissions.”

The $227.8 billion CalSTRS, the second-largest pension plan in the US by assets under management, has a $115.5 global equity portfolio. It votes proxies on thousands of publicly traded companies, mostly through its in-house passive equity index portfolios.

The support of carbon pricing and what corporations are doing to implement such schemes would be another lens that CalSTRS would examine as it analyzes corporation’s sustainability polices.

“Carbon pricing should be set at a level that accounts for the negative externalities created by additional carbon in the atmosphere, allowing businesses, consumers, and investors to make more informed long-term decisions that benefit current and future generations,” the addition to the corporate governance policy reads. “The framework should seek to avoid exacerbating economic inequality and its related geopolitical risks. Our engagements and proxy votes will reflect this support for global carbon pricing mechanisms.”

CalSTRS has the support of its general investment consultant for its carbon pricing policy.

“Climate risks, and efforts to address and to mitigate these risks, continue to grow and to shift,” a memo from the Meketa Investment Group says. “In our opinion, at this juncture, carbon pricing has emerged globally as a viable component to help affect a smoother market transition to a low carbon future.” 

The carbon pricing policy addition to the corporate governance principles came at the request of California State Controller Betty T. Yee, who is also a CalSTRS investment committee member.

In a March 5 letter, she stressed the need for CalSTRS to support carbon pricing. She noted the 2015 Paris climate agreement, which called on governments to lower keep global climate change to less than 2 degrees Celsius, above pre-industrial levels, as well as the U.N.-sponsored Intergovernmental Panel on Climate Change, which last fall called for an even stricter 1.5 degrees Celsius limit.

“Prominent economists, former US Treasury secretaries, and former Federal Reserve chairs have encouraged support for a national carbon price, saying it is the most efficient way to correct the market and steer economic actors to a low carbon future,” she wrote.

There has been little interest so far among US pension plans in supporting carbon pricing, but CalSTRS isn’t totally alone. Investment officials at the largest US pension system, the California Public Employees’ Retirement System (CalPERS), are developing a formal policy in support of carbon pricing, with the aim of making large greenhouse gas emitters pay a price for their emissions

A draft policy presented to the system’s investment committee at its March 19 meeting states CalPERS wants a “clear carbon pricing framework that approximately prices the externalized cost to the economy and society from greenhouse gas emissions.”

The United States has no carbon pricing policy and efforts for such a program have failed in a politically divided Congress. Some individual states, including California, have implemented systems.

The California program, which was approved by lawmakers in 2011, requires large carbon emitters to buy permits that allow them to continue to produce large amounts of carbon or make emissions cuts.

While carbon emissions have gone down since the law went into effect in California, it is hard to gauge the law’s effect, since the state has also put into place rules requiring utilities to significantly increase their renewable energy efforts..

By 2030, utilities in California must get 50% of the power to generate electricity from renewable power sources.

Around 40 counties have some type of carbon pricing scheme, the latest being Canada.  A national plan was put in place last month by Canadian Prime Minister Justin Trudeau, who has fulfilled a 2015 campaign promise.


California Controller, CalSTRS CEO: Financial Markets Are Underpricing Carbon Risk

Australia’s Superfunds Embrace New Carbon-Pricing Scheme

CalPERS Puts ‘Laser-Like Focus’ on ESG, Board Diversity, and Executive Pay

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