The California State Teachers’ Retirement System has released its 10th annual sustainability report, for the 2022 to 2023 fiscal year, highlighting the $325.9 billion pension fund’s organizational sustainability and future sustainability goals.
As part of the fund’s strategic plan covering 2022 through 2025, CalSTRS developed a sustainability road map to “advance organizational sustainability.” So far, the fund reported having completed plans to update its sustainability measures using expanded standards and frameworks. The fund accomplished its goal of reporting on its enterprise greenhouse gas emissions.
Plans are in progress to seek reduction opportunities for enterprise greenhouse gas emissions and to develop sustainability education for CalSTRS employees.
Push to Fully Funded Status
In its report, released Monday, CalSTRS noted that the fund’s beneficiaries are not only living longer than the average American, but they are living longer than beneficiaries of other pension funds. The fund stated that CalSTRS will be able to continue to provide benefits to last through its beneficiaries’ retirements.
The fund has 1 million beneficiaries, with $18.2 billion in benefits paid out to members in fiscal 2023. To meet the goal of continuing to grow the pension’s funded status, it adopted a funding plan in 2014.
That plan was to reach fully funded status by 2046, and CalSTRS noted that it is ahead of schedule. When the plan was adopted, CalSTRS projections called for a funded status of 67.5% by June 30, 2022, but as of that date’s actual variation, CalSTRS’ funded status sat at 74.4%.
“The funding plan set a measured schedule of contribution rate increases for members, employers and the state with the goal of achieving full funding by 2046,” CalSTRS officials wrote in the report. “The plan also provided the board with limited authority to adjust rates to help keep the funding plan on schedule.”
CalSTRS projections assume a 7% annual return and payroll growth of 3.5%, noting that a period of low returns could negatively impact future funded status levels. The fund achieved a 6.3% return in fiscal 2023, below its assumed annual rate of return.
Net Zero Commitment
In 2021, CalSTRS adopted a path to net zero plan, seeking to achieve a net zero portfolio by 2050, which means that greenhouse gas emissions from companies in the fund’s portfolio would be offset completely.
In the 2022 to 2023 fiscal year, the fund reported the following accomplishments in its plans to manage and reduce portfolio emissions, influence a global shift to a net-zero economy and increase investments to low-carbon solutions:
- Reallocated capital within the global equity portfolio to reduce greenhouse gas emissions by approximately 14%;
- Integrated climate scenarios into its asset-liability modeling framework using the Network for Greening the Financial System to help assess risks of the low-carbon transition;
- Escalated efforts to hold global companies accountable for failing to address and disclose climate change risks by voting against 2,035 boards of directors in the 2023 proxy season;
- Approved a plan that aims to reduce emissions in the corporate credit portion of the fixed-income portfolio by 12% while preserving expected returns; and
- Deployed more than $1.3 billion into a dedicated low-carbon solutions private assets portfolio managed by its sustainable investment and stewardship strategies unit.
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