Dive Brief:
- The California State Teachers’ Retirement System, the nation’s largest teachers’ retirement system and the second-largest public pension fund, is experiencing issues in calculating the carbon footprint of its $336.2 billion portfolio, the fund disclosed in an agenda notice issued ahead of its May 1 investment board meeting.
- CalSTRS said its staff discovered inconsistencies during the emissions measurement process in 2022, and found that the equity and debt values did not align with the fund’s portfolio market values provided by State Street. This mismatch ended up “strongly influencing emissions calculations” and yielded inaccurate results, according to the fund.
- The educator-only fund, which serves 949,000 California-based public school teachers and their families, said its staff was unable to find a “feasible” solution to its emissions data disclosure delay and will defer disclosure of its 2023 emissions data from this year to 2025.
Dive Insight:
The fund said it would provide public market emissions data for 2021 and 2022 for this year’s disclosure, along with a year-over year comparison in lieu of a report on 2023 emissions.
“The best course of action is to lag our emissions disclosure by one year to ensure there is not [a] timing mismatch and inaccuracies,” CalSTRS said in the agenda notice.
Upon reviewing its emissions measurement process, the fund concluded that the discrepancy in data arose due to the fact that the data was coming from different service providers. This led to a mismatch in total company values (debt and equity) and the time period chosen to report the emissions.
The fund also said its staff anticipates “more robust and timely corporate emissions disclosure” with the incorporation of the Securities and Exchange Commission’s final climate disclosure rule and the increased acceptance of reporting frameworks such as the International Sustainability Standards Board’s climate disclosure guidance — which promise more “meaningful” emissions measurement.
Though the SEC climate rule passed with a 3-2 vote in March, its fate hangs in the balance following the agency’s announcement earlier this month that it will halt the rule’s implementation as it works through several legal challenges put forward by critics. The SEC is currently facing nine petitions in the U.S. Eighth Circuit of Appeals.
CalSTRS has a long-term goal of reaching net-zero emissions across its investment portfolio by 2050 or sooner and a short-term goal of reducing emissions from its portfolio by 50% by 2030.
The teachers’ retirement system said in the notice that absolute emissions will be the focus of its net-zero target and the metric it will use when reporting emissions.
CalSTRS said it would avoid using “normalized emissions” — which measure emissions per unit of investment — despite such a metric allowing for portfolios of different sizes and different securities to be compared in terms of their carbon footprint. Its staff concluded these metrics were “too influenced by market movements to provide meaningful data.” However, the fund said its staff would also continue to keep its eyes on other emissions metrics, such as “intensity metrics,” which measure emissions per unit of sales or revenue.
Similar to its metrics policy, which is based on comparability of data, CalSTRS said it believed measurement of scope 1 and scope 2 emissions of company investments in its portfolio was the “appropriate” choice, pointing to inconsistencies in the production and accounting of scope 3 emissions data.
“The current market consensus is that the methods of accounting for scope 3 emissions … are still under debate, and any emissions data produced would likely not be reliable or useful for decision making,” CalSTRS said in its notice
