CalPERS Sets the Record Straight on Its Climate Action Plan

The following letter from Chief Executive Officer Marcie Frost was sent on March 14, 2025 to representatives of California Common Good.

Overview

On March 3, 2025, CalPERS received a report issued by California Common Good focusing on our climate investing, based on documents we provided pursuant to the California Public Records Act.

CalPERS leaders frequently meet with a variety of policy and political representatives to discuss our climate investing strategy. We wish there had been a similar opportunity in this case.

Unfortunately, the report raises unfounded concerns that CalPERS isn’t serious about addressing climate change. Even worse, it could be construed as suggesting that CalPERS is intentionally misleading its 2.2 million members and the public about the intent of our climate investing program.

That’s why we feel it’s important to set the record straight.

CalPERS Supports Better Climate Investing Definitions

Thoughtful supporters of investing in a net zero future know there’s no single definition of what constitutes a “climate solution,” a challenge CalPERS faced launching our plan in the latter half of 2023.

Our investment team sought out best practices in methodology, including standards supported by the Institutional Investor Group on Climate Change (IIGCC), the EU Sustainable Finance Disclosure Regulation (SFDR), and the European Securities and Markets Authority (ESMA).

The CalPERS approach has been iterative, one that reflects the emergence of best practices and additional data. That drove the decision to update the list of core climate investments in 2024.

We wish things were easier. CalPERS has long supported clarity and consistency in climate investing definitions. We reject any suggestion that our methodology wasn’t well researched or independently authenticated.

Missing in Action: The Report Lacks Context

CalPERS provided two data sets to California Common Good, detailing the climate valuations of our publicly owned companies as they stood in 2023 and again in 2024.

Each list contained totaled investments in more than 3,000 companies. But California Common Good chose to cast doubt on our process by selectively focusing on 43 companies it believes have no value to a low-carbon economy.

Here’s what the report’s authors missed.

Several of the highlighted companies have issued what are known as “green bonds,” raising capital to help fund climate-aware projects.

Green bonds represent 100% of the climate solution we attributed to companies such as Alcoa Corporation ($40.8 million) and MidAmerican Energy Company ($116.9 million).

California Common Good never asked why those investments in those companies were included, choosing instead to draw its own conclusions.

The report aims most of its criticism at CalPERS’ inclusion of seven oil and gas companies on our climate list. Unfortunately, its authors left out the context provided by the documents they requested: technologies owned by these companies account for only $67 million – less than two tenths of one percent – of the pension fund’s $50 billion in baseline climate investments.

It's not just a problem with context, though. The report provides erroneous numbers about the amount in our climate calculation attributed to three state-owned oil and gas companies. Combined, they only account for $1.3 million.

These tiny percentages are hardly evidence of some diabolical attempt to rebrand oil and gas companies as climate champions.

A Green Asset Is a Green Asset

The inclusion of low-carbon initiatives from legacy energy companies seems to be California Common Good’s primary objection to CalPERS’ climate strategy.

The group’s standard seems to be all-or-nothing. Either a company is 100% “green” or it can’t be considered as contributing any kind of climate solution.

We respectfully disagree. We believe a green asset is a green asset, regardless of corporate ownership.

Our plan uses asset-level taxonomies to track climate solution investments in three categories:

• Mitigation strategies to reduce emissions through green products and services.
• Adaptation strategies to prevent or respond to the impact of climate change on industries and communities.
• Transition strategies that support pro-climate activities in the high-emitting, hard-to-decarbonize sectors of the global economy.

Transition strategies are especially important. Improvements in the high-emitting sectors won’t succeed without badly needed capital from investors like CalPERS. Investing in these types of companies will raise our portfolio’s total emissions in the short term but will provide financial and environmental benefits down the road.

CalPERS Does Not Support Energy Divestment

California Common Good’s standard would require a sweeping energy divestment – a symbolic act that not only ignores the value of climate transformations and investor engagement, but a possible breach of our fiduciary duty as required under the California Constitution.

We believe divestment isn’t prudent, or achieves what it sets out to accomplish.

In 2023, researchers at the University of Southern California and the University of Utah concluded that divestment would lead to even higher emissions as companies simply replace CalPERS with new investors less likely to focus on the long-term value of decarbonization.

Climate Investing in Private Asset Classes

We also take issue with California Common Good’s assertion that CalPERS failed to disclose any information regarding private assets invested in climate solutions.

In fact, we provided a breakdown by all asset classes. We disclosed that of $24.3 billion in baseline private asset climate investments were counted in 2024, the majority being in real estate ($17 billion) and infrastructure ($4.3 billion).

In our release of documents, we told the group’s representative that state law provides a basic level of confidentiality to additional details covering some private investments.

What’s Next?

Even in the face of significant differences, we agree with California Common Good on some important issues.

We agree that climate change is a systemic financial risk.

We agree on the importance of science-based standards when investing in decarbonization efforts.

We agree that it takes vigilance to ensure a company is making good on its plans.

We agree on the importance of credible transition plans.

We agree annual reports help track our progress and our activities.

And finally, we agree on the importance of communicating with our members and various stakeholders about what we’re doing, why we believe in it, and what it will take to succeed.