By Ross Kerber
(Reuters) -California's top public pension system on Friday said it will more than double its climate-focused investments to $100 billion by 2030 and consider selling stocks in companies with poor plans for the energy transition.
Staff of the California Public Employees' Retirement System (CalPERS) said the plan will boost returns for the $444 billion system, the largest in the U.S., plus cut in half its portfolio's "emissions intensity," a measure of emissions relative to output.
"We believe there's a full opportunity set coming about from the transition to a lower-carbon economy," said Peter Cashion, CalPERS head of sustainable investing, in a call with reporters on Thursday.
The moves represent a big bet on new technologies and that businesses and regulators will embrace steps to limit global temperature increases as CalPERS allocates retirement assets in the heavily Democratic state.
Green energy investing faces much debate during a recent wave of oil-and-gas mergers and big writedowns for windfarm projects. But U.S. solar market values have hit record highs while gas prices have soared, supporting the business case for new infrastructure.
Cashion said the new investments will be spread among companies that do things like mitigate emissions or make infrastructure more resilient to climate change, selected across different asset classes.
New laws in California require more corporate climate disclosures. Additional proposed legislation would require state funds to sell fossil fuel stocks, following systems in other states such as Maine.
CalPERS' board voted in March to oppose the idea, saying it would do little to limit emissions and could compromise returns. Cashion called it "a very inelegant solution."
But he said CalPERS will develop a process to evaluate whether a company is prepared for stronger climate regulations or shifts in consumer demand. It will consider factors such as whether a company has plans validated by the Science Based Targets initiative, backed by the United Nations and business and environmental groups.
For laggards, he said, "we believe that an underweight or some tactical change would be appropriate."
Although formal approval is not required, CalPERS staff will present the plan to the board's investment committee for feedback Nov 13.
California Treasurer Fiona Ma, the sole CalPERS board member to favor divestment at the March vote, did not immediately dismiss the new climate investment plan. She said in a statement she was "eager to hear more."
A 2021 law in Maine directed the state's Public Employees Retirement System to halt new fossil fuel investments and divest current holdings by the start of 2026, "consistent with fiduciary obligations."
Putting the law in practice could force tradeoffs. In a report last year consultant NEPC found much of the $19 billion system's exposure to fossil fuels was through private market holdings that might have to be sold at a discount, creating an estimated loss of $566 million in one scenario.