Asset AllocationJuly 3, 2024

CalPERS Increases Climate-Related Investments by Nearly $10B

Approximately half of the new investments will be in public equity, with the rest going into private markets.

Reported by Michael Katz

The California Public Employees’ Retirement System announced it is committing $9.7 billion toward investing in the anticipated transition to a low-carbon economy, including a customized public equity index and new private market investments.

Among the investments, the $502 billion pension giant committed $5 billion in public equity investments to a customized climate transition index, described as a scalable alternative to capitalization-weighting. The index’s composition will consider both the risks and opportunities related to the energy transition.

CalPERS has also signed nine commitments totaling more than $1.1 billion in private market investments in sectors that support energy production and distribution, in addition to freight and supply chain optimization. The remaining $3.6 billion will go to other undisclosed private market investments, which the pension fund stated are currently under review. According to the pension fund’s statement, some of the investments are expected to be finalized in the coming weeks and months.

“The CalPERS Climate Action Plan is designed to take advantage of the rapid growth in climate transition investment opportunities,” said CalPERS CEO Marcie Frost in a statement. “As we continue to measure the portfolio risks posed by climate change, our long-term strategy must also include providing some of the capital needed to finance the decarbonization of the global economy.”

Under the pension fund’s Climate Action Plan, CalPERS aims to commit at least $100 billion to climate-related investments and halve the carbon intensity of its portfolio by the end of 2030. As of November 2023, when the plan was launched, CalPERS had approximately $47 billion in climate-related investments.

The climate plan is intended to provide the capital needed to fund “advancements through mitigation, adaptation, and transition.”

According to the action plan, “the move to a low-carbon economy represents the largest economic revolution of our time and a significant opportunity, with global investors spending a record $1.8 trillion on energy transition technologies in 2023.”

According to CalPERS, its investment officials will provide additional details on the Climate Action Plan during the pension fund’s Board of Administration meeting on July 15.

“The CalPERS Climate Action Plan is designed to make our pension fund the global partner of choice in climate investing,” said Peter Cashion, managing investment director of CalPERS’ Sustainable Investments Program, in a statement. “To do that, we need a diverse set of investments and tools to generate the excess returns that are achievable during this historic transition to a low-carbon future.”