CalSTRS Cites Funding Status, Net Zero Progress, and DEI in Sustainability Report

Sustainability report highlights progress on topics including funding; the path to net zero; sustainable operations; and diversity, equity and inclusion.


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.

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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.

Environmental Impacts

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.”

Social Impacts

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.


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Sequoia Capital, Thoma Bravo, Paradigm Sued for Touting FTX

Investment firms allegedly made ‘deceptive and misleading statements’ to promote the failed crypto exchange.

 


Investment firms Sequoia Capital, Thoma Bravo and Paradigm Operations have been sued for allegedly making deceptive statements while promoting the now bankrupt cryptocurrency exchange FTX.

According to a complaint filed in U.S. District Court for the Northern District of California by former customers of FTX Trading Ltd., Rabbitte v. Sequoia Capital Operations LLC et al., the three firms made “materially false and misleading statements” to promote FTX and induce customers to use its crypto trading platform. The suit alleges the investors “aided and abetted the misconduct that led to the collapse of the FTX Entities.”

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The FTX Entities consisted of the FTX cryptocurrency exchange, which was started in 2019 by Samuel Bankman-Fried, and crypto-trading firm Alameda Research, which Bankman-Fried founded in 2017. 

FTX and had grown in size from $1.2 billion to $32 billion in three years; however, it all came crashing down in November when cryptocurrency publication CoinDesk published a story that questioned the financial health of FTX as well as Bankman-Fried’s claims that FTX and  Alameda were separate entities. Shortly after the story was published, the crypto exchange saw significant customer withdrawals that led to a liquidity crisis and the collapse of the company. 

The plaintiffs’ lawyers argue that because Sequoia Capital Operations LLC, Thoma Bravo UK LLP, and Paradigm Operations LP were among FTX’s largest financial backers, they had an incentive to use their reputations and media outreach to portray FTX as a trustworthy and legitimate cryptocurrency exchange.

“FTX’s campaign to build trust relied on significant financial support” from Sequoia, Thoma Bravo and Paradigm, the complaint states. According to the plaintiffs’ lawyers, a key component of the “highly lucrative” promotional marketing campaign included the air of legitimacy lent by the three firms who claimed to have conducted significant due diligence into FTX’s operations and who vouched that its platforms were safe and secure.

“These defendants were part owners of the FTX Entities and had a significant financial interest in promoting the use of the FTX platforms so as to increase the returns on their investments,” the complaint states.

According to the complaint, Paradigm had invested more than $250 million in various FTX entities, while Sequoia and Thoma Bravo invested more than $200 million and $100 million, respectively.

The complaint cites a now-deleted self-published piece on Sequoia’s website that claimed FTX had distinguished itself by its trustworthiness and was backed by “credible sources,” adding that “it was built to be the exchange traders could count on.”

The complaint also says Sequoia publicly referred to Sam Bankman-Fried, FTX’s founder, as “a special founder who is ambitious and daring enough to build the future of crypto by establishing FTX as the global exchange with the best overall product offering and leveraging the world’s crypto rails to build the future of finance.”

The complaint also notes that Alfred Lin, a partner in Sequoia who led the firm’s investments into FTX, said in a press release that FTX was the “high-quality, global crypto exchange the world needs,” adding that it “has the potential to become the leading financial exchange for all types of assets.”

The complaint also cites a Tweet from Orlando Bravo, the founder and managing partner of Thoma Bravo, warning crypto traders to trade Bitcoin only on a legitimate exchange and urging his Twitter followers to only trade Bitcoin with FTX. The complaint also says Bravo was quoted in a news article stating that Bankman-Fried “combines being visionary with being a phenomenal operator.”

Paradigm is also accused of deceptively touting Bankman-Fried as “one of those special founders whose vision is both stunningly ambitious and uniquely adapted to the future of crypto.” The complaint says Paradigm continued to promote FTX’s global platform throughout 2022, with a spokesperson describing Paradigm as fortunate to be an investor in FTX.

The complaint also cites a speech at the University of Pennsylvania’s Wharton School of Business and Carey Law School in January in which Commodities Futures Trading Commissioner Christy Goldsmith Romero said, “FTX appears to have used Sequoia as a credibility and trust enhancer,” and “It appears that Sequoia at least knew its money would be used in this fashion.”

Thoma Bravo declined to comment. Representatives from Sequoia Capital, and Paradigm did not immediately respond to a request for comment.

 

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