Support CalSTRS and CalPERS Using Environmental, Social, and Governance (ESG) Criteria in Making Investment Decisions
March 19, 2023


Whereas, institutional investors, because of the size of their portfolios, can influence the behavior of firms in how they deal with their impact on the environment (E), how they treat their workforce (S), and how the governance structure of the firm (G) affects the decision making of the firm; and 

Whereas, the CFT for several decades has been pushing CalSTRS and CalPERS to incorporate ESG impacts when making their investment decisions; and

Whereas, CalSTRS has committed the organization to making its portfolio carbon neutral by 2050 or before; and

Whereas, CalSTRS has committed itself to reducing the carbon footprint of its portfolio by at least 50% by 2030; and 

Whereas, CalSTRS and CalPERS have become international leaders in the movement by institutional investors to respond to the problems being caused by climate change and the corporations that are fueling that problem; and 

Whereas, CalSTRS Board Vice-Chair and CFT member Sharon Hendricks recently joined the board of Principles for Responsible Investment (PRI) supported by the United Nations addressing investment risk related to climate change and the just transition for workers; and

Whereas, a corporation’s carbon emissions create a direct, long-term, material risk to investors; and

Whereas, at present there is no requirement that corporations report their carbon emissions; and 

Whereas, the Securities and Exchange Commission (SEC) is considering a new rule that would require all publicly traded corporations to report their Scope 1 and Scope 2 carbon emissions; and

Whereas, Representative Chris Stewart (R-Utah), who sits on the House Appropriations Committee, has stated a priority to block the SEC from implementing this rule; and

Whereas, the fossil fuel industry, their allies in other industries, and their political allies are now reacting to significant progress being made by the engagement efforts of institutional investors to force corporations to reduce their carbon emissions; and

Whereas, the Texas State Legislature passed legislation to block the state’s pension funds from using ESG criteria in making their investment decisions; and

Whereas, regulators in Texas sent letters to 20 banks doing business in Texas to force them to stop using the material risk from climate change as part of the criteria for denying loans to fossil fuel companies based on the risk they face from the damage they are doing to the environment; and

Whereas, the American Legislative Exchange Council (ALEC) has released a model policy, titled the State Government Employee Retirement Protection Act, that forms the basis for legislation to block any state or local pension fund in a state from using ESG criteria in making investment decisions; and

Whereas, this draft legislation has already led leaders in several fossil fuel producing states to discuss policies that that would bar the state from doing business with any company that takes the risks associated with climate change into consideration when making its business decisions; and

Whereas, investment management firms such as Vanguard and BlackRock, through their active engagement, have led many firms to reduce their carbon footprint and reduce other ESG risks; and 

Whereas, the Attorneys General of thirteen states, including Kentucky, Indiana, and Utah, have filed motions to the Federal Energy Regulatory Commission (FERC) to stop Vanguard from purchasing shares in publicly traded utilities because they might use their ownership stake to encourage these utilities to reduce their reliance on fossil fuels and reduce their overall carbon footprint; and

Whereas, West Virginia and Florida dropped BlackRock Inc. funds from their portfolios over the asset manager’s embrace of ESG investing; and

Whereas, using ESG criteria in investment decisions has repeatedly shown material benefit to the returns of pension investments; and

Whereas, investment management advisory firms are rapidly developing tools to measure the material impact of climate and other ESG risks to guide institutional investors to both decarbonize their portfolios and increase their direct investment in climate solutions; and

Whereas, these advisory firms are also developing tools to measure the material risks associated with declining biodiversity and water scarcity; and

Whereas, many corporations have recognized the long-term risk of climate change and other ESG risks, such as human rights abuses embedded in their supply chains, and are actively seeking advice on how to measure their ESG risks and how to incorporate these risks into their business decisions; 

Therefore, be it resolved, that CFT supports the proposed Securities and Exchange Commission regulation to require all publicly traded corporations to report their carbon emissions; and

Be it further resolved, that CFT supports CalSTRS and CalPERS efforts in the process of creating standardized metrics for measuring the material effects of ESG factors on investment returns; and

Be it further resolved, the CFT opposes any legislation that would block pension fund investors from using ESG criteria in making investment decisions; and 

Be it further resolved, the CFT opposes any legislation that would penalize any companies for using ESG criteria to guide their business decisions; and

Be it finally resolved, the CFT calls on the national AFT to adopt a resolution supporting the use of ESG criteria in all investment decisions, and to oppose any state or federal legislation that would inhibit the use of ESG criteria in any of these decisions.

  • Submitted by the Retirement Policy Committee