CalPERS says it plans to align with TCFD amid new California climate legislation

Jerry Brown signed the SB 964 into law in 2018.

Californian public pension giant CalPERS has revealed that it intends to “align” with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) in its first climate risk report under new legislation covering the state’s pension funds.

It comes as five NGOs yesterday wrote to CalPERS and fellow state fund CalSTRS suggesting “best-practice recommendations” for how they should report on climate-related financial risks, in order to comply with the new legislation and “avoid legal liability”.

California’s then Governor Jerry Brown signed the legislation (Senate Bill 964, SB 964) into law in September 2018.

It requires CalPERS and CalSTRS, which together manage close to $600bn (€526.7bn) in assets, to publicly report every three years on the climate-related financial risks of their public market portfolios, “including the alignment of the fund with the Paris climate agreement and California climate policy goals and the exposure of the fund to long-term risks”.

The first of these reports is due on January 1 next year but the non-profit groups are concerned about the “completeness and adequacy” of the reports that will be produced.

Support for the TCFD is cited in three of the NGOs’ letters, with Environment California and Fossil Free California calling for a “detailed analysis of fund holdings” based on the recommendations of the Mark Carney-inspired initiative.

Both CalPERS and CalSTRS have been “supporters” of the TCFD since 2017 but only CalPERS has confirmed to RI that it intends to use the framework in its report.

The TCFD currently has around 80 asset owner supporters and 140 asset manager supporters, according to its secretariat. That’s out of a total of 785 supporters – though the number that report against its recommendations is far less than that at this stage.

A spokesperson for CalPERS told RI: “We are building our report to meet the requirements of SB 964, and we intend for it to align with the TCFD recommendations. We do not have any other comment beyond that.”

In its letter to the funds, Environment California and Fossil Free California – which co-sponsored SB 964 – also state that the bill includes a requirement for the funds to discuss “specific holdings, by name” as part of their assessments.The Center for International Environmental Law (CIEL) adds in its letter that the funds must demonstrate in their disclosures how retaining fossil fuel assets “is consistent with provision of the investment policy and serves the interests of beneficiaries”.

Steven Feit, Staff Attorney at the CIEL, said: “For those managing pension funds, monitoring how climate change impacts these investments is more than just good business sense; it’s a legal duty”.

Last August, both CalSTRS and CalPERS told RI that they had not taken a position on the then proposed legislation.

CalSTRS, however, had opposed a similar climate risk bill (SB 560) in 2017, claiming that it would restrict its “investment authority” and infringe its “constitutional mandate” to fulfil its fiduciary duty.

A spokesperson for CalSTRS told RI that the fund has a “decade plus long history of reporting on our environmental-themed investments and environmental risk-management efforts through CalSTRS Green Initiative Task Force report”.

“We believe that this mandatory legislative report will have a positive two-fold effect: it will enhance the visibility of CalSTRS engagement in considering the adverse impacts of climate change on our investment portfolio; and our climate-related financial risks reporting efforts will produce data that underscores CalSTRS commitment to a low-carbon economy. We look forward to sharing our updated report later this year.”

In April, another bill on climate risk that would have compelled Colorado’s $53bn public pension fund, the Public Employees’ Retirement Association, to assess its exposure to climate-related financial risks fell at the first legislative hurdle.

But according to the Environment California and Fossil Free California “legislators in several other states are considering introducing legislation similar to California’s new statute”.