Largest U.S. Pension Fund To Invest $100 Billion In Climate Solutions By 2030

There are times when an established company, an investor, a startup makes a move that is so strategic—so in tune with the risks and the opportunities of the moment—that it marks the shift between the market’s past and its future.

We recently witnessed that moment.

In a bold step tailored to meet the existential challenges and colossal financial risks of a warming climate and harness the massive opportunities of the shift to a new clean economy, California Public Employees’ Retirement System, the largest public pension fund in the U.S. managing $446 billion, announced plans to invest $100 billion in climate solutions by 2030.

This step, which doubles down on the pension fund’s climate investing plans for the next seven years, underpins the comprehensive strategy that CalPERS laid out for achieving its goal of cutting emissions from its portfolio investments to net zero by 2050 while assuring long-term financial results for its pensioners.

In the process, it makes starkly clear that transition plans—the specific and concrete strategies and timelines investors and companies are adopting for reaching their climate goals and acting on climate-related risk—aren’t about being defensive.

They’re about addressing the major risks that financial markets and companies face as a result of the changing climate—the supply chain disruptions, the diminished worker productivity, the damage to corporate infrastructure and the communities businesses operate in. Risks that continue to escalate. Recent government data shows that weather-driven disasters, including wildfires, flooding, and drought, are happening more frequently in the U.S., costing $150 billion annually, with the number of billion-dollar disasters growing sixfold since the 1980s, from three disasters on average annually to 18 annually in recent years.

Just as critically, transition plans are about embracing the booming new clean economy, creating new markets, and investing in the next batch of winners as this shift continues to accelerate exponentially—and avoiding being left behind with dwindling markets, outmoded business models, and stranded assets. This year, a record $1.8 trillion was poured into clean energy investment alone, far outpacing investment in fossil fuel energy, according to the International Energy Agency.

CalPERS’ investment calculus is based solidly on a transition plan that combines ambition, analytics, engagement, and deep risk assessment. The plan sets a high standard and a plan necessary to remain competitive in the changing economy and take the appropriate steps for managing financial risk and protecting long-term shareholder value.

Because while more investors are adopting transition plans as blueprints for how they make the clean energy shift, too often their plans are incomplete and lack clear goals and timelines, with few strategically addressing all the ways that climate change has created investment risks for different sectors across the economy or seeing clearly the opportunities that will emerge in the new economy.

A few pieces of the CalPERS’ plan highlight why it’s an example of a standout strategy:

• Significant climate investment: CalPERS $100 billion investment marks a significant shift in the investment landscape. As the public pension fund that manages retirement and health benefits for more than 2 million public employees, retirees, and their families in California, CalPERS is responsible for protecting and growing people’s hard-earned savings. Investment in climate solutions, clean energy infrastructure, green real estate, and climate bonds isn’t a risky strategy. It’s a rational market response to the competitively driven innovation, plummeting equipment and installation costs, and market-based industrial strategies from the U.S. Europe, Japan, and China that are driving increasingly ambitious corporate activity and new financial investment opportunities in electric vehicle manufacturing, decarbonizing buildings, greening the grid, and advanced manufacturing. In just the short 16 months since it was passed, companies and investors have responded to the solid market signals of the Inflation Reduction Act and announced more than $380 billion in new private sector clean energy manufacturing investments in the U.S.
• Deep engagement and accountability: CalPERS has long supported companies that are managing their risks responsibly and preparing for their transition to the net zero economy. It is now bolstering this engagement by adding an assessment of companies’ net zero plans that will focus on financial risk analysis, and pinpoint investment opportunities in companies that are built to withstand the risks of climate change and leverage the transition to the clean energy economy. Based on this insight, CalPERS is prepared to assure that its holdings in companies manage their risks and produce credible net zero plans. This will make CalPERS’ engagements with companies particularly effective, as smart firms will respond with more robust transition plans—which is in the long-term best interests of their shareholders anyway.
• Alignment with global momentum and the changing regulatory environment: Following the passage of historic climate risk disclosure laws in California in September and the anticipated release of new climate disclosure rules from the U.S. Securities and Exchange Commission designed to give the market the information it needs to make informed decisions, CalPERS is solidly part of the momentum behind transparency. Just as investors have been the driving force in calling for the companies they invest in to disclose their climate-related risks so that they have the information they need about how companies are managing risk, they must be equally transparent. CalPERS’ transition plan is a comprehensive and exemplary investor climate action plan that follows the emerging global norms developed by Ceres and our global partners, as well as new principles the U.S. Treasury recently released, for providing the decision-useful information needed for fully functioning capital markets.

The changes that CalPERS just rolled out in its transition plan are a pivotal leadership moment, one that is needed more than ever. The recent slew of sobering reports, including the National Climate Assessment and the United Nations Framework Convention on Climate Change first global stocktake report, makes clear how far off track the world is to avoiding the worst impacts of the warming climate on our planet and economy—and yet how we have all the tools we need to avoid this fate.

During the 2023 United Nations Conference of Parties (COP28), other investors should be inspired by CalPERS’ ambition, recognize the competitive advantage it is staking out, and act boldly themselves to capitalize on the opportunity of the clean economy transition and prudently manage the financial risks that they and their investments face.

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