Gavin Newsom tells CalPERS, CalSTRS to favor green investments in climate change order

Gov. Gavin Newsom on Friday signed an executive order to leverage the might of California’s $700 billion public pension funds and the state’s purchasing power as a highway builder in a campaign to reduce greenhouse gas emissions.

Newsom’s order caps a week in his administration fought with Trump administration over the state’s authority to regulate greenhouse gas emissions through the California Air Resources Board, and in which the $83 billion University of California Retirement Plan announced that it would divest from fossil fuels.

“Our state is proof that you can reach some of the strongest climate goals in the world while also achieving record economic growth,” Newsom said in written remarks. “How we meet this moment will define our state – and country – for decades to come, just as the emergence of the internet defined our economy over the past few decades. We have to get ahead of this and align our state investments, our purchasing power and our transportation and housing policies to be ready to meet this moment head-on.”

Newsom’s order does not instruct the $380 billion California Public Employees’ Retirement System or the $237 billion California State Teachers’ Retirement System to pull money out of oil and gas.

Rather, the order directs the public pension funds to work with the Newsom administration on an investment framework that would “provide a timeline and criteria to shift investments to companies and industry sectors that have greater growth potential based on their focus of adapting to and mitigating the impacts of climate change, including investments in carbon-neutral, carbon-negative and clean energy technologies.”

Divesting from fossil fuels is a controversial subject for the public employee pension funds because all three state retirement plans are underfunded, and failing to hit investment targets could force taxpayers to kick in more money for civil servants’ pensions.

Some public employees and retiree groups have been outspoken in discouraging CalPERS and CalSTRS from considering any divestment. Last year, Corona police officer Jason Perez won an election for a seat on the CalPERS Board of Administration in part by criticizing the pension fund’s discussions on social and environmental issues.

Still, the pension funds regularly face calls to divest from oil and gas from Democratic leaders.

Treasurer Fiona Ma, for instance, last week called for CalSTRS to shift $6 billion in fossil investments to other industries. She is a member of the CalSTRS Retirement Board and the CalPERS Board of Administration. Both pension funds also withdrew investments from coal to comply with a 2015 state law.

“CalSTRS shares the governor’s sense of urgency and welcomes the opportunity to work together with the state and other partners to address climate change. We recognize the material and existential risks climate change poses to society, the economy and our investment portfolio,” CalSTRS Chief Executive Officer Jack Ehnes said.

Both CalPERS and CalSTRS have sustainable investment strategies they use to consider climate risk and to press corporations to account for the environmental impacts of their businesses.

“We agree with Gov. Newsom that climate change is a threat to business and to economic growth,” CalPERS Chief Executive Officer Marcie Frost said. “Climate change is a systemic risk to our pension fund and we have been actively engaged for years to confront it. With the world’s leading investors, we advocate for changes that minimize the financial risk to our investments while quickening the pace to a low-carbon economy.”

Newsom’s order further directs California state government to reduce greenhouse gas emissions when considering how to build highways and roads and in developing state-operated buildings. The order encourages the state to fund transit projects near job centers and to support alternative transportation methods.

The order also asks the California Air Resources Board to create new incentives for people who buy zero-emission vehicles. About 600,000 zero-emission vehicles are on California roads today.

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