Senate Standing Committee on Labor, Public Employment and Retirement

Good morning to the respective Committee Members and to the public. Welcome to the Joint Informational Hearing of the Assembly Committee on Public Employment and Retirement and the Senate Committee on Labor, Public Employment, and Retirement.

This is the second year, and I've had the pleasure to Chair the Assembly Committee, and I'm looking forward to hearing from representatives from the California Actuary Advisory Panel, CalPERS, CalSTRS, and the public. Let me start off by saying that public employee retirement, which means pension benefits for our public employees throughout the state, is important for many reasons.

I can go on and on about these reasons, but in the interest of time, I'll provide several of them for content. First, a pension provides financial security for retirees like myself. Public employees work, earn an income for that work, and pay contributions towards their pension. Their employers also pay contributions.

These contributions are then invested by CalPERS and CalSTRS so that the promise of a pension, meaning guaranteed income in retirement, exists when the employee retires. Second, because a pension provides guaranteed income in retirement, it helps to ensure that retirees are less dependent on social programs and services for Californians who are most in need.

A retired person system--a retired pension system member is less likely to depend on these programs. Third, retirees who receive a pension support state and local economies by buying goods and services which support businesses and jobs.

Fourth, through their investment of contributions from public employers and their employees, CalPERS and CalSTRS also support state, local, national, and international economies which also support businesses and jobs. As I said, I can go on and on, but since we have limited time, I'll connect on how these are important and relevant regarding the subject of today's hearing.

Our hearing today will focus on the financial status of our health of the systems as well as what they're doing in the space of climate investing. The financial health and the investment of these systems are absolutely crucial components of keeping the pension promise.

We're going to hear from the actual experts who are directly responsible for the pensions of millions of present and future retirees who are relying on these individuals and others to administer that promise. So we're going to do a little housekeeping.

I'm now going to briefly cover the structure of this hearing and go over some simple housekeeping rules. Because we have limited time today for members of both committees, you'll notice that among your materials you have a notepad and a pen. I ask that you hold your questions or comments until we get to committee questions and answer session after the presentation of our experts, our panelists, so that they have ample time and opportunity to complete their presentations.

They will present a lot of important information and your questions might be answered during the course of their presentation. If you have a question or comment during the presentation, a notepad and pen is there for you to jot down something you've heard that you'd like to ask the panelists about or make comments after their presentation is done.

During the first part of this hearing, as required by law, we'll hear from a California Actuarial Advisory Panel representative regarding the financial status of public employees' retirement. At the end of that part of the hearing, we'll have a few minutes for public comment for those who want to make remarks.

After that, we'll start the second part of this hearing where we'll hear from CalPERS and CalSTRS representatives who will discuss their emerging climate investment initiatives. Following questions and answers from the committee members after their presentation will also have a few minutes for public comments on these topics of the hearing.

As to the second part of this hearing, we recognize that emerging climate investment and climate change are related subjects because Senator Gonzalez is an active voice regarding climate change, and pitch in system investments, we have invited the Senator to speak at the presentation table for five to seven minutes at the beginning of the public comment period during the second part of the hearing, and she may be a little late because she's also in another Committee, so we're going to allow her time when she enters the room.

After that, we'll hear from firefighter, classified school employee representatives, and private sector employees for a total of five to seven minutes as their perspectives. After that, we will have ten minutes to hear comments from the general public.

Regarding the public comments during the part of this hearing, I want to make it crystal clear that we are not here to specifically discuss Senator Gonzalez's legislation regarding CalPERS, CalSTRS investments whatsoever. This bill is not on the agenda for today's hearing and no one should use this hearing as an opportunity to specifically advocate or discuss the that bill.

Interested parties will have an opportunity to specifically advocate regarding that bill within the next month. So I'm going to caution everyone, if you proceed to make specific remarks about that bill, we will proceed to the next speaker. If you're unable to make public comments during this hearing, you may submit written comments to both committees.

I understand and appreciate that a lot of folks are passionate about the subjects of this hearing. However, regarding disruptions during this hearing, the Assembly and Senate have experienced a number of disruptions during committee and floor proceedings in the last few years. So that it's crystal clear to everyone, conduct that disrupts, disturbs, or impedes the orderly conduct of this hearing is strictly prohibited.

To address any disruptive conduct, I will direct the individual to stop, and warn them if the disruption continues, they may be removed from participating in this hearing or the Capitol. If disruptions continue, we may temporarily recess or simply adjourn the hearing. Thank you in advance for your cooperation.

Now I'd like to turn it over to my Co-Chair, Senator Smallwood-Cuevas, Chair of the Senate Labor, Public Employment Retirement Committee, for opening remarks. Thank you, Senator.

And thank you, Assembly Member McKinnor, for those instructions and setting the tone for the importance of today. I'm honored to be here, and I welcome all of the participants to this important hearing where we will learn about the people's investments through our pension system.

And I want to say, as a community activist who has worked in worker rights for many years, there are far too many people talking about pensions for the purposes of dismantling them, but I know firsthand the value of a pension and why these kinds of conversations are important.

It's about protecting our communities, but it's also about investing in our communities, and I'm proud to say that many of our pension funds are making strong investments in places like South Central Los Angeles, and so for me, this hearing is particularly special and important.

I also look forward to the presentation today, and particularly the actuarial estimates or assumptions that are going to be shared with us so that we can ensure that there is financial integrity in our system and that we are investing in California in a way that will make a difference in the lives of workers, particularly public sector workers, but for all of our communities.

I understand that these two largest funds will lay out elements of their work. They will focus on sustainable investments, and that's something that we're very excited to hear about. Both provide the investment returns necessary to fulfill our promise to provide retirement security, but also make sure that our dedicated public employees are able to ensure investments and wealth for next generations.

And that will do a lot to address not just our environmental climate change, but also our economic climate change that we all want and wish for in the State of California for our families to do better than the generation before them.

I understand that there are many investment opportunities in sectors that are making meaningful change to transition the world to a green economy. It's just in the New York Times how there is a treaty agreement that is in place, being put in place to continue to hold our world governments accountable to climate change.

And here in California, we are making sure that we are making meaningful change through our pension programs, and I support the fund's efforts in developing and investing in those positive changes. I do think that we have older industries that we have to move away from, and California has committed to doing that. We know that there are workers in those industries as well, and we want to make sure we do this in a way that respects all workers, but we have to deliver on a climate-resilient economy for our future and for California.

I also hope to hear how the funds will ensure that their investments and their initiatives support high-road jobs and support skilled and trained employees, as we know that public employees who are unionized and have fought for high wages and benefits, they're investing into a system. We want that system to also support other workers having high wages and dignity on the job and respect, and able to invest in their futures as well.

And finally, I want to be clear that we need to hear that the pension system support investments that provides opportunities for all communities that have far too long been skipped over and have been disinvested in. Representing South Central Los Angeles, we live and see it every day as the industrial has shifted into a service economy that has far too many families struggling. We need to invest in these communities, and that's what many of these funds are doing.

We need capital to go to these communities who have done so much with so little and who are disproportionately impacted by climate change. If we want to imagine change, we have to start with these communities. And so I look forward to the conversation today. I look forward to the questions.

I look forward to us conducting ourselves with dignity and respect so that we can get the information that we need to ensure that we have a pension system that is building the future that all Californians deserve. So thank you very much, Chairwoman, for your words and for this opportunity to speak.

Thank you, Madam Chair. All right, let's get started with the first part of this hearing. We have David Lamoureux--I hope I said it right--Deputy Chief Actuary of CalSTRS, on behalf of the California Actuary Advisory Panel. Welcome, David. Thank you for being here today. You have about 15 minutes, and when you get to about ten minutes, I will give you a nod if you need that much time. Thank you.

Thank you very much. Good morning, everyone. I'm David Lamoureux. Again, I'm the Deputy System Actuary at CalSTRS, but I'm here today as a representative of the California Actuarial Advisory Panel, and just to make it easier on everyone, we call it the CAAP, much easier to say. So, and you should have been provided a handout that if you want to follow along as I go with my remarks, as shown on page two, the CAAP was created in 2008. It is an eight-member panel.

We are housed in the State Controller's Office, and it was created to provide impartial and independent information on pension fund and best practices. And over the years, we've actually have issued--CAAP has issued several guidance documents that can be found on our website. I've provided a link on the handout, and some of those guidance documents talk about model funding practices.

And this is for California. So we've issued documents to provide guidance to actuaries in California when performing actuarial work. Now, each member of the panel, as shown on page three, is appointed by an entity. I'm appointed by CalSTRS. CalPERS appoints one member.

Two members are appointed by the Governor, one by the Speaker of the Assembly, one by the Senate Committee on Rules, one by the UC system, and one by the State Association of County Retirement Systems. Now, the main reason I'm here today is because of Government Code 20229. So this is a code that was added in statute almost 15 years ago, back in 2010, that requires CalPERS annually to provide certain information related to the pension costs of state employees.

Specifically, it requires that CalPERS provides both liabilities and contribution rate information using an investment return assumption that is two percent lower and two percent higher than what they assume. It also requires that CalPERS provides contribution rate information by amortizing or paying down their unfunded liability over a time period that is called the average remaining service period.

So if you look at the average employee for the state, how many years do they have left to work? That period is what the law requires CalPERS to use when amortizing the unfunded liability.

Now, the Government Code 20229 also requires one person, a member of the CAAP, myself today, to come in front of you to talk about a few things, to explain the role of the investment return assumption in the funding of pension benefits, to describe the consequences to state's budget if CalPERS were to earn less or more than their assumed investment return, and to also report whether or not the CalPERS amortization period exceeds what I mentioned before, the average remaining service period.

So if you look at the investment return assumption, this is probably the most important assumption used by all pension fund when you're funding pension benefits. Like if you look at both, if you look at us at CalSTRS, like today, for every dollar of benefits that we pay, between 0.60 to 0.65 cents comes from investment income.

So that's why the investment return assumption is so important. It's what generates the most--it's what provides the most funding for pension benefits. So when it comes to CalPERS, their current assumption is 6.8 percent. So they assume that over time they will earn on average 6.8 percent. Now they're never going to earn exactly this amount on any given year, but the goal is, for all pension system when you make this assumption, is to earn this number over a long period of time.

So what it means for CalPERS in a year where they earn less than 6.8, it's what we call an investment loss or an actual loss that then potentially requires higher contribution to make it up and vice versa. In the year where CalPERS earns more than eight percent, you have a gain that then could be used to lower contributions.

So that's how pension funds are funded. And just to put it in perspective, if you look in California, of all of the major retirement systems in California, because beside CalPERS and CalSTRS, you have several county retirement systems, and most systems in California assume--have an investment return assumption that ranges between 6.75 and seven percent. So at 6.8, CalPERS is right in the range of what everyone is using in California.

When it comes to the amortization period, so what we're talking about here is if you have an unfunded liability--so if the liabilities of the system are greater than the assets is what we call non-funded liability--most boards or retirement system will then have to select an amortization period.

Over how many years are we going to try to reach full funding and pay down that unfunded liability? At CalPERS, their board has adopted a policy that new unfunded liability, for example, created from an investment loss, would be paid over a 20-year period. Earlier, I talked about some of the guidance document that we issued.

We have stated in that document that using a 15 to 20-year period is model practice, Aad if you look across the United States, there are also some guidance document provided by national actuarial organizations, and 15 to 20 years is viewed as model funding practice. So CalPERS uses a 20-year amortization period.

So for them, their goal is to try to reach, to be fully funded over a 20-year period. Now what that means is if you put it in a context, for example, as an individual trying to get a mortgage, it's the same idea when it comes to an amortization period. If you select a shorter amortization period, you will end up with higher payments in the short-term, but lower costs long-term. Just like if you pick a 15-year mortgage versus a 30-year mortgage, you have higher monthly payments with a 15-year mortgage, but you pay less interest over the long-term.

So that's the same principle when it comes to an amortization period for pension fund. So 20-year for CalPERS is within what we view at the CAAP as model practice. Now, the section 20229 asked me to come here and tell you whether or not the amortization period used by CalPERS, the 20-year I mentioned, exceeds what we call the average remaining service period for state employees. Now, the state employees for CalPERS, there are five separate pension plans for the state employees at CalPERS.

They are called the state miscellaneous, which covers most of the office workers like myself, the state industrial, state safety, state peace officer and firefighter, and California Highway Patrol. And for all of those plans, the average remaining service period is about 11 or 12 years. So that means that CalPERS does in fact use a longer period than the average service period, but again, I think you will rarely see pension funds in the United States that use an amortization period as low as 10, 11, or 12 years.

The main thing to consider here is, as I mentioned, investment return assumption is the most important assumption when you fund pension benefit, but it's also the most volatile on any given year. Like if you look at us at CalSTRS, a few years ago, we earned 27 percent in one year. The following year, our return was negative.

So massive shift. But over that two-year period, we more than exceeded what we assume. So if you have too short an amortization period when you try to react to these market swings, it may translate into contribution rate volatility. So that's why sometimes actuaries recommend 15 to 20 years as an acceptable period because it's a good trade-off between not having too long a period, but also keeping contribution rates a bit more stable. So that's why 15 to 20 years is viewed as model practice.

And the last thing I want to mention, so Government 20229, the code requires CalPERS to disclose a lot of information. So I was not planning to go through this information today. I just want to highlight to you that since that requirement has been in statute, CalPERS has met it every year. They have disclosed this information each year in their annual actual valuation report.

The report is available on the CalPERS website. On the last page of my handout, I've provided a link there and to show you how much information is required to be disclosed by this section code. CalPERS provides information over ten pages in their report.

So you have ten pages of information showing charts and numbers related to liabilities and cost information using different investment return assumption and different amortization period. So with this, it completes my remarks, and I would be happy to answer any questions you may have about actuarial practice in general, funding practice, CalSTRS, CalPERS. Thank you.

Thank you, David. Thank you so much. We'll bring it back to the Committee. Do you have any questions? Senator?

Thank you, Madam Chair. So I have a question, and this is not the question that was prepared. I have a question of what you just presented. In the State of California, we're recognizing we have a boom-bust economy, and this is my--going into my second year. But we have established Rainy Day Funds, we have established ways of trying to mitigate this shift and swing in our economy.

So when you say the example that you gave of the 27 percent volatility and then a decline, how does a pension weather that? Do you have strategies that allow you to maximize those kinds of peaks and then to sort of weather the lows?

Yes. So what is common practice, common actuarial practice both in California and across the U.S., actuaries over the years have--so what actuaries generally do, it's called--it's an actual term--it's called asset smoothing. It's like a Rainy Day Fund.

So in a year when you have good return, for example, for us at CalSTRS, our board has adopted a policy where we only recognize, for example, a third of the investment gain, and we put the other two-thirds, if you want, in a Rainy Day Fund, to be used the next two years in case it goes the other way.

So most pension system, I would say use between a three to five-year, if you want smoothing period in order to smooth those events and CalPERS uses a five-year period. At CalSTRS, we use three to five is the most common period use. You're welcome.

Thank you, Madam Chair. David, can you break down for us what unfunded and underfunded liabilities mean and how this affects the system? Also, can you describe for us the role that investments play in the financial health of a pension system and when considering changes in mortality assumptions in system maturity?

Yes. So if you think about funding a pension benefit, you've just hired an employee today. That employee is 25 years old, and you're guaranteeing them a benefit when they retire. And let's say they're going to retire in 40 years at age 65. It's a long time period. So as actuaries, we have to make several assumptions: investment return, how long they're going to live, when are they going to retire. And these assumptions are meant to be long-term, but we also know that on any given year, especially the investment return, you might either earn less or more than what you assume.

And when those events occur, you might end up either ahead of schedule or a bit below schedule in your goal to fund that benefit. So being underfunded or having an underfunded liability simply means you've fallen below schedule, and now you need to raise contribution rates to go back on schedule.

So when you hear a plan is underfunded, that means that the liabilities, which is the actuaries' estimate of how much money you should have in the fund today to be able to cover the benefits that have been accrued, you compare that to the assets, and if the assets are less, you have a non-funded liability.

So that's--so if you look for us at CalSTRS, right now we just reported we're about 76 percent funded. So that's what a non-funded liability is. So it's a reflection of all the actual assumptions that go into the calculation and whether you've met them or not.

What is your ideal? You said we're at 76 percent funded. What would be your idea percentage for us to be funded?

In a perfect world, you would be 100 percent funded, but what is most important--so that's why I tell people, never look at a specific funded status at the point in time. What you really have to look at is, does the system have a plan in place to reach full funding?

So you have to look ahead to see is the plan making meaningful progress to eliminate the unfunded liability? Because you may have a plan that's 80 percent funded, but if they're not paying enough, maybe that funded status is projected to go down. So that will be my--my recommendation will be to look ahead to see is the plan making additional contribution to reach full funding?

One last question from me. How is the funding plan affected when the assumed rate of return on investment is not achieved? And also, when investment--I think you probably answered that with Senator Cuevas, actually, about the Rainy Day Fund, so I think you've answered that. So one last question, though, and from my head.

When a person, like, promotes up, like they're working on the job for 40 years, they promote up, they start paying in more money, does that also help with the funding? Because as you promote, does your contribution increase?

So not the contribution rate. So most employees contribute as a percentage of their salary. So as you get pay increases, you do contribute more, but generally, I would we consider that a--that's an actual term--a cost-neutral event, because you also get a higher benefit. Because the benefits are based on the salary. So when you get a higher benefit, you pay--a higher salary--you pay, you pay more, but you also get a higher benefit.

Thank you.

I'm sorry. You made me think of another question or two that I have. So with that, what might we look at down the road in terms of risk for our pensions in terms of exposure? What are some of the things we need to think about?

You know, we have the war in Ukraine right now, for example. How does that impact potential risks? But it, just as we think about our budget, the deficit that we're in, vacancies that are being pulled back, jobs that, hiring freezes that we hope will never happen but we've seen that in other times, you know, what is the potential risk that we're facing and how do we address that?

So when it comes to risk, especially for funding pension benefits, what I would first say is every pension fund is unique because they have their own sets of members' demographics. So for us at CalSTRS, we actually issue a report once a year in November that we call the Review of Funding Levels and Risk, where we focus on the main risks that could prevent us from reaching full funding.

And some of those risks, although they might be slightly different from one system to the next, they all probably apply to all of them. So investment risk is always the number one risk for pension funding, because, as I said before, so much of the benefits when they're paid out comes from investment performance.

So not meeting your investment return assumption over the long-term is probably the biggest risk. But for us also at CalSTRS, we also monitor what we call longevity risk because it's a--we administered the fine benefit programs where we pay benefits until a member passes away or their beneficiary passes away.

So how long a member lives is also something that actuaries have to pay attention to. And that's a very important assumption for us. We are blessed at CalSTRS to have members who live a very long time.

I don't know if you've heard the expression 'teachers live forever,' but no, it is shocking sometimes to see teachers live, on average, two to three years longer than the average person in California, which is great. But as a pension fund, you have to keep an eye on this because it is additional money you have to pay.

So that I would say, longevity risk, investment risk, and for us also, we keep a lot an eye on how many teachers we have in the system because that's the money coming in that helps to fund those benefits. So those generally, I would say, are the risks that they might have a slight different impact depending on the system, but generally, those are the main risk that all of the actuaries keep an eye on when it comes to funding pension benefits.

Thank you. Thank you, Committee. I'm sorry. We have Assembly Member Hart.

Yeah, just that your comment raised a question in my mind. Is there a difference in the newer employees' participation in the defined benefit pension plan programs? Are you noticing a trend with younger employees being stressed financially and not contributing to their pension plans? Is that a factor in your long-term projection?

So not contributing is not a factor because in California, once, if you work for a public employer that provides a pension benefit, so either you're covered, whether you're covered by CalPERS, CalSTRS, or a county retirement system, you're required by law to pay us a set percentage toward your pension. So the employees are required to put a percentage of their salary away toward their pension benefit.

Yeah, I was thinking that with the changes that had occurred, how has that affected these long-term trends, the pension reforms that happened about ten years ago?

So what we're noticing, again, so you can see already, since it's been in place since 2014, so there are--so all of the new employees are subject to slightly lower retirement benefits. It is still too early to tell what kind of impact it has on the demographics because most individuals work a good 25 to 30 years. At this, most actuaries right now, we're all anticipating that members will retire at a later age than they have historically. So we have yet to really see a shift in demographic patterns.

Probably in ten years, we'll be in a better position to answer you. So that's the thing with funding pension benefit. It's like taking the Titanic across the ocean. It's a slow moving ship. So that's why when you hire someone at 25, you won't know for 30 years or 40 years whether or not your assumption that they were going to retire at age 60 is correct or not. So it takes time, and so we'll be in a better position to answer those questions, unfortunately, in another ten years.

Probably a better ship.

Yes. A better ship. Yes.

Senator Laird.

If I could just ask a follow-up question, because even if it's ten years, you know what the ship is moving on those people that came in in the ten years, as opposed to those people that came in in ten years before. You can't make some kind of assessment of what the change is between those two?

Oh, we do. And so--

Then what is it?

What is it? So generally, the assessment is that members will retire at a later age. If you provide someone a lower retirement benefit, you would expect them that in order to be able to keep the same standard of living after working, that they're going to have to work a little bit longer.

So for us at CalSTRS, we have, when--the pension reform is referred as PEPRA--so for us, we have two sets of benefits, and we do assume that our teachers will retire a little bit later under the new retirement formula. Now we have seen a slight increase in our retirement ages at CalSTRS over the last 15 years. Used to be closer to 62, now it's closer to 63, so you can see that slowly the pension reform is working. Members are working a little bit later.

And generally, for a pension fund, working longer, retiring at a later age means lower cost for members and the employers, because the longer you work, generally it allows you to save more money to pay for the retirement benefit. So that was one of the reasons for the pension reform legislation, was by lowering the benefit and raising, if you want the retirement ages, it did lower costs for all retirement systems.

Okay. Because I thought that would have been the answer to his question, so that's why I was following up. And just for the record, we have a very interested two-party sitting over here as somebody that has 40 years credit in the pension system and is engaged in. He went to max out in the law firm--in the law enforcement. Well. But it makes the point. It makes the point.

I turned on my pension at age 69. If everybody had waited to age 69 at the former pension system, be in a lot better shape than what the reforms are trying to bring about. And I'm having a good time, but there are a lot of people that don't have that same experience, and so they retire earlier. Thank you.

Assembly Member Lackey.

Yeah, I'm going to ask a question that may come across as unfriendly, but it's not meant to be. I think it needs to be asked because we're all here because there's divestment considerations. Is there any scenario at all where divestment does not put this funding or does not enhance the unfunded liability risk? Is there any scenario where it doesn't do that?

I would say that might be more a question for the investment professionals. Generally, our answer as actuaries to this would be if the belief that divestment will increase investment risk and potentially result in lower investment return going forward, then it is going to raise cost for the plan sponsors in those cases.

In the case of the state, it might require them to pay more toward CalPERS to fund the benefits. But it's all a matter of if the pension system is forced to divest from something and it results in them earning less, lower investment return going forward, it is going to raise pension cost. Now the question is--

Explain a scenario where it doesn't do that. So I was just asking maybe because I'm not a financial professional, but it seems to me that all it does is increase risk.

Historically at CalSTRS, we've published information that have shown that when we have been forced to divest it has resulted in us having lower investment returns. So if this were to continue going forward, then--

Yeah. Yes. You validated my assumption. Thank you.

Thank you. Thank you, David, and thank you, Committee Members. Now we'll move on to public comment or public questions. We have five minutes for that. We have a microphone here to the left of me. Are there any public comments?

You guys can line up. Yes. If you have questions. So it's five minutes total.

Okay. Sorry, I'm not as prepared as I want to be because I just flew in today from a long trip. So. So I'll be as succinct as possible. So I'm Fatima Iqbal-Zubair from California Environmental Voters.

I'm also a former teacher and, you know, would have been a potential pension holder, also a mom to a son in public school. So a lot of interest in this, you know, and I also care about frontline communities and vulnerable communities that are susceptible to climate change.

I know that, you know, CalSTRS and CalPERS have been leaders in many sustainability efforts, but, you know, my view is that these efforts don't go far enough. You know, there was a question just asked about, you know, the risk.

And I would argue that, you know, what makes returns worse for a pension fund are when the investment is in risky industries, that is actually bad for returns. So, you know, then there's, we actually have evidence to show that. So if the Committee Members are open, I can, we can send, those over.

Also, the policy of engagement has proven a lot to be ineffective. The truth is, we saw what happened with Exxon and the shareholders there. I'm sure you're all aware the fossil fuel industry is also not diversifying and not changing its business model. It's actually doubling down on its work to slow the transition and in green technology.

And so one thing I will also state is that divesting, you know, the reason that I, you know, we believe in it as an organization, is that it ends the contradictory actions and position the state as a leader in the fight against climate change. You know, when we're investing in an industry, it's a risky industry.

It's going against our values as well. And also to date, I just want to note that over 1600 institutions worldwide have divested, including the University of California, including California State University systems, and would love to send you all in the Committee, these reports so you can see how successful that has been.

Because the fact is we want our teachers, our public workers to be protected, and we should be investing in the companies that are going to maximize those returns and not cause teachers to have to pay more into the fund, which I agree with. So, thank you.

Thank you. Is there anyone else with public comment? Again, thank you for being. Oh, come on up.

Thank you, Cynthia Kaufman. I was planning on commenting on the next one, but I did want to, just like Fatima, also jump in on this, which is to say that when the funds have divested, they've often done much better. Right?

And as Fatima said, fossil fuels are incredibly volatile, incredibly risky part of the portfolio, and it's a dying sector. And there's no reason to believe that in 10 years that sector is going to be doing better than it's doing right now. Thank you very much. Can you give us your name and your sensation?

Cynthia Kaufman, and I volunteer with Fossil Free California. And I'm the Director of the Vasconcellos Institute for Democracy and Action.

Thank you again. Thank you for being here today in your presentation. David, was excellent. We appreciate you. I think I turned myself off again. Now we'll move to the second part of this hearing. We have representatives from CalPERS and CalSTRS who will discuss their emerging climate investment initiatives as they come on the screen.

I think we're going to have someone come on the screen. Is that right? zero, there she is. Okay. We welcome from their time and participation today. I also ask the public to be courteous and not interrupt this part of the hearing or their presentation.

Each system CEO, please introduce yourself, others who are with you today and provide a brief overview of your system. Of course, if you have more information to provide beyond an overview, you are welcome to do so. You may proceed when ready.

All right. Good morning, Chair Mckinnor. I'm assuming you're wanting me to go ahead and move forward.

Yes. Thank you.

Good morning, Chair Mckinnor and Chair Smallwood-Cuevas. And Committee Members. My name is Marcie Frost, and I'm the CEO at CalPERS. Let me begin by apologizing for not being able to join you in person today. I'm currently in New York and doing a number of business meetings that were on my calendar before the rescheduled date came in.

But I really appreciate the work your team did to provide this virtual option so that I could participate. It was really important for me to have this opportunity to speak for a few minutes about a very critical issue, an issue that I know that I've had several conversations throughout my time at CalPERS.

In lieu of my in person presence, we do have Chief Operating Investment Officer Michael Cohen. He's there with you in the hearing room and will continue the conversation and will also be available to help answer any questions the Committee may have.

As you know, CalPERS is the largest public pension fund in the United States with almost a half trillion in assets under management. And we invest those assets on the behalf of about 2.2 million members who work in communities across the state. As we like to say, we serve those who serve California.

So I want to begin our discussion of CalPERS approach to climate change by talking about the concept of risk. Almost every investment carries some level of risk. Our job, and a key part of our fiduciary duty to CalPERS members, is to be really good at measuring and understanding risk.

But not all risk is bad when it comes to investing. The greater the amount of risk an investor takes, the greater the return that we're going to expect. Some risk is worth the opportunity. What we have to avoid is systemic risk, the kind of widespread disruption that poses financial danger to investors.

And climate change is a systemic risk. The size and scope of climate change poses a variety of threats across the CalPERS portfolio. Infrastructure and real estate are vulnerable to droughts, floods, fires and other extreme conditions. These physical risks also threaten the supply chains for companies in which we invest, making financial markets more volatile.

Existing business models across the world are subject to transition risks caused by climate change. If companies can't continue to profit, investors will pay the price. The CalPERS roadmap for addressing climate change is our sustainable investments plan, and we announced this plan just a few months ago.

We believe that it's not so much about protecting our portfolio from climate change, but rather transforming our portfolio to invest in the industries that are growing in response to climate change. When we invest in these industries, we can provide strong returns and also help to decarbonize the global economy.

You will hear more about our plan in a few moments and our investments in activities related to climate adaptation, mitigation and transition. And I want to briefly tell you that beyond climate change, there are other essential parts of our sustainable investing plan.

These include a commitment to labor principles, the importance of diversity, equity and inclusion when it comes to our investments, and also continuing our vital role in corporate governance. The last item on corporate governance explains why we've been talking so much in recent weeks at that one example of our belief in corporate governance.

Earlier today, and also part of the reason that I'm here in New York, we voted against the board of directors of Exxon Mobil and the company's CEO for taking legal action against shareholders who simply wanted to be heard at their annual shareholder meetings. But for this hearing, we will focus on our $100 billion climate action plan.

CalPERS launched this effort last fall, and it will more than double the size of our climate portfolio over the next six years. We expect these investments to cut the carbon intensity of our portfolio by half, and the plan is an important step on a much larger journey toward our net zero path at 2050.

Our team will soon report sizable new climate investments made in recent weeks, with more investments by year's end and sustained efforts through 2030. I want to highlight one kind of climate investing opportunity that I don't think really gets enough attention. And that's the opportunity to provide the capital that some companies badly need to transition to renewable energy.

If we simply focused on reducing our portfolio's absolute emissions, we couldn't invest in these kinds of companies because they would be considered too dirty for investment. But if these companies don't reduce their emissions, we are all at risk. The goal isn't just to make our portfolio look good.

It's also to ensure that the portfolio makes a difference by providing secure benefits and combating climate change. No matter what some might tell you, I've heard these arguments before. These goals are not mutually exclusive. Our sustainable investments plan also includes the next phase of a vital tool that I made note of a few minutes ago.

Our engagement as company shareholders. Engagement is a dialogue, one that holds companies accountable for credible climate strategies. And by credible, we mean that a company's climate plan passes through both a science-based lens and a fiduciary lens. And I can't stress enough how important it is to assess both criteria.

If a company fails these tests, that's the kind of risk we need to minimize. Now, none of this is easy. Slogans are easy. Statements of principle are easy. Careful strategic investing is really hard, and it does take time. It also takes help.

And so I want to thank the Legislature for its efforts last year in promoting greater corporate transparency regarding carbon emissions. That data will be an essential part of our work, both in our sustainable investing 2030 plan as well as the rest of the portfolio. We know the clock is ticking on addressing climate change.

We know we need to move with speed. But we also need to make sure that our actions pass the high hurdle of fiduciary duty. We are not just investors. We know our members depend on us to provide the retirement benefits that they have been promised, and we believe we can play an important role in this critical effort.

And we welcome the chance to tell you more about how we're doing that, both today and in many more conversations to come. So thank you again for allowing me to join you remotely. I'll stay on, and when you're ready, we will be happy to answer any questions you may have. Thank you.

Thanks, Marcie. I'm Michael Cohen, the Chief Operating Investment Officer for CalPERS. Thank you for having me. It's nice to be back in front of the Legislature. Let me dig a little bit. Not at all. I think I was in this room for the governor's reorganization plan the last time I was here.

As Marci pointed out, CalPERS is focused on investment returns by financing the global energy transition.

We also talk about this transition and being a just transition, and that references the DEI and the labor principles that aren't really part of my comments today because we're focused more on the climate aspects of our plan, but are absolutely critical components of the way we think about sustainability.

Last year alone, worldwide climate investments totaled some $1.7 trillion. For context, that's roughly half of California's entire economy. That said, that's probably not gonna be enough. In fact, a new study from Bloomberg NEF estimates that getting to net zero by 2050 is gonna require a total of $215 trillion worth of investment.

So for us, that actually provides high quality investment opportunities for those that have large pools of capital like CalPERS and our sustainable investments 2030 plan is investing in these types of opportunities. These climate investments will be some of the world's most significant investments to date, growing our portfolio while also making it more resilient.

Let me dig a little deeper into the plan. Last November, we announced our $100 billion climate action plan, a significant and new initiative that will get our portfolio to net zero by 2050. The chart we provided for today's hearing lays out five important components of the plan.

This is on slide three if you have the materials in front of you. First, increased investments. Second, more engagement with companies on investing in climate solutions and taking advocacy efforts that promote decarbonization. Third, developing a new process to potentially exit certain investments when a company lacks a credible net zero plan.

Fourth, integrating climate risks into CalPERS investments decisions and finally, enhancing our measurements and reporting of portfolio emissions. The plan includes a wide array of opportunities that meet our goals for generating excess returns above our benchmark targets.

In other words, our investment premise is that we can both make money and help spur the global economy to address climate change. The $100 billion climate action plan accelerates the work that's already well underway.

We ended last calendar year with roughly $47 billion in climate investments, and so we're less than halfway there to the $100 billion mark. These investments are largely as shown on slide four in our public equity holdings and our real estate portfolio.

It includes investments in renewable energy, sustainable packaging, electric vehicles and greed buildings, just to name a few examples. The $100 billion climate action plan includes significant investments across all five of our asset classes were intentionally very diversified by investing both on the public and the private market sides.

Specifically, as noted in slide five, we'll focus our opportunities in three specific types of climate investments. There are parts of the effort. These are parts of the effort to more than double our climate portfolio in the next six years. First, CalPERS will invest in climate change mitigation efforts.

These are investments to reduce emissions, such as renewable energy, carbon capture and storage, and waste management. The plan also calls for investments in adaptation strategies in this category. Think of those things that help us manage floods and droughts, such as developing heat resistant crops, or investing in technology related to disaster preparedness.

Finally, we're seeking to support climate transition investments that Marcie referenced. These investments will help companies with high emissions become part of the solution instead of part of the problem. There's tremendous opportunity to provide capital to companies that want to move from so called brown energy production to green.

The example we've used before in this area is a utility that might still have coal fired power generation, but they want to transition to renewable power. Doing so would both benefit the climate and the company's bottom line. These types of companies need our investment dollars.

Walking away from the opportunities could stall or even derail such critically important transitions. Our sustainable investing plan is balanced. It's aligned with the best practices of climate science and climate finance, and it's at the scale that will have an impact now and well into the future. As I've said, we're well underway.

And as Marci just referenced, we'll have more news on specific investments that we're making in the coming weeks. I'd like to spend a few more minutes to talk to you about another important part of our $100 billion climate action plan. That's the effort to expand and strengthen our engagement efforts.

We engage with companies when it comes to whether they're doing enough to address climate change. First, let me explain what engagement means. CalPERS, as you know, is the largest public pension in America. That means we own roughly 6000 publicly traded companies. So as a large stockholder, we have a voice that can't be ignored.

Our team regularly meets with the leaders of dozens of companies urging action on climate related issues that we believe pose that systemic risk to our investments. We're not silent partners when it comes to climate issues. We know that engagement often doesn't get a lot of credit for bringing change.

But speaking up and demanding action is a powerful tool. Last fall, a group of academics, including two professors at USC, released a study of climate change engagement by public pension funds, including CalPERS. We've provided you the Committee, a copy of that report.

The researchers wanted to answer the fundamental question of whether a company was more likely to reduce its carbon emissions when a pension fund used its ownership to demand change, or whether those pro-climate changes would still occur if a pension fund sold off all of its shares.

The key finding of that report was that buying more shares of a company and engaging with them on emissions reduction has a real impact. To quote the report, engagement reduced emissions.

And as Marci noted in her introductory remarks, the reason we've spent so much time over the last couple of weeks talking about Exxon is that we believe our voice as a large shareholder needs to be heard. That's exactly what engagement is all about.

Let me give you two more real world examples about how CalPERS has had success in the engagement realm. First, Trane technology. They're a longtime leader in heating, air conditioning and refrigeration. As a large investor, we've advocated not only for a net zero policy, but also for Trane to reduce and set short term emission targets. And it worked.

Trane was the first company in its industry to adopt a net zero target approved by science based targets initiative, and CalPERS had a meaningful role in that process. The second example is Toyota, where we're also a sizable shareholder. We pushed for a 30% cut in greenhouse gas emissions over the life of a vehicle.

Look, engagement's not always perfect, but it does work. Engagement relies on clear, consistent data from these companies and through groups like Climate Action 100 plus, an organization that CalPERS helped create, we've worked hard to make companies more transparent about their carbon footprints. The work's going to continue in the coming year.

Last month, I was named as the chair of the Steering Committee for Climate Action 100 to ensure the organization continues its hard work and meets the challenges of climate change head on. Our climate action plan provides an important evolution in engagement. We're establishing new evidence-based guidelines to verify whether a company has a credible net zero plan.

We'll focus on the highest emitting companies that have the largest carbon footprints. High emitting companies without a credible net zero plan likely puts our investments at risk, which is contrary to our fiduciary duty. A missing platform a company will compel us to act, including reducing our investments significantly or canceling it altogether.

We're going to hold ourselves accountable for results, and we'll report annually as we approach 2030. These highlights are just a few reasons why we believe our sustainable investing plan is an example of California leading the way for the rest of the world when it comes to fighting climate change and responding to its risks.

Our work is vitally important, both for our members, those that are current workers and retired public servants, and for the global economy. We're working closely with our partners across California and internationally on best-in-class investments, and we're working for consistent, transparent expectations for the companies in which we invest. Thank you for your time.

I'll happily answer any questions once the rest of the panel provides their presentations.

Good morning, Chairwoman Mckinnor and Chairwoman Smallwood-Cuevas. It's nice to see you again. And nice to meet you. And good morning, members of the Committee. I wanted to thank you for the opportunity to be here today.

And I wanted to start with the CalSTRS mission, which is what we're here for at CalSTRS, which is to provide a secure retirement to our members, our California public educators. And I'm Cassandra Lichnock, the CEO of CalSTRS. Thank you. I'm here today with our newly appointed CIO, Scott Chan.

He's going to be taking the head of the investment branch effective July 1, and my investment Director over our sustainable investment and stewardship strategies portfolio, which we term SISS. So that's a lot easier than that long name. I also wanted to provide you a snapshot of the CalSTRS membership.

CalSTRS has over a million members, making us the largest educator-only pension fund in the world.

Over 70%, 72 and a half percent of our membership is female, which impacts a number of things on how we look at our liabilities and assumptions in the organization, and a lot of the work that David looks at when we are evaluating the membership.

Our members retire on average of 62 years of age with 25 years of service and receive an average monthly benefit of $4,600 per month. Our members do not participate in Social Security, so our benefit, so our benefit provided to them may be the only retirement income that our members receive for the remainder of their lives.

This could be the only retirement income that they have.

The value of the defined benefit is also listed in some of the context of the slides. But what I wanted to move towards is the longevity that our members have in our system, and it's something that David already spoke to.

But if you can see on slide, on page three, on slide five, the differences between what the national longevity patterns are reflective in the Social Security chart, CalPERS Bar, which is reflective of California longevity patterns, and CalSTRS, where we realize a three year longevity improvement in our membership because of a number of different factors.

One of those factors is that females live longer than men. But another factor that goes into this consideration is that people that have higher educations also live longer. And we have a very highly educated population. 67% of our membership has a master's degree or higher. So that impacts longevity.

And a number of other factors have contributed to the fact that our members live a long time. The following slide reflects the number of members that we have, 430 that are over 100 years old, receiving retirement benefits.

We were surprised when we looked at our data on pulling the membership in this category and realized that we had so many members receiving retirement benefits and some of them still substitute to this day.

The funding plan that we have in place that was enacted in 2014 is on track to get us fully funded by 2046, where, as David mentioned, we're 75.9% funded as of today.

You can see on the following chart that the inflows and outflows of our contributions to benefit payments is in a deficit factor, meaning that we're heavily reliant on investment returns. We have 15. As of between 22 and 23 years, we have 15.7 billion coming in on contributions and $18.4 billion paid out in retirement benefits.

That's $1.5 billion a month that we pay out to our retirees. And this is another area which one of the Committee Members asked about being underfunded or unfunded. If our membership lives one year longer, that can create an $18.4 billion unfunded liability because it wasn't included in the assumptions and the longevity patterns. Is that correct? Okay.

All right, he's going to keep me straight on this. 61 cents of every benefit dollar paid comes from our investment returns. That really is reflective of how important our investments are.

Our new Chief Investment Officer, Scott, will be providing information about investment strategies, including our pledge to reach a net zero greenhouse gas emissions portfolio by 2050 or sooner. So I'm going to hand it over to Scott.

Great. Thank you, Cassandra, and good morning. I'm really delighted to be here to share and embody the values of our teachers and talk about our constituents and what we're doing at CalSTRS. So, again, my name is Scott Chan. I'm actually currently the deputy CIO up until July.

I'll be the next Chief Investment Officer, replacing and succeeding Chris Aylman, who, you may know, CalSTRS is the largest educator only pension fund in the world. We have roughly $340 billion in assets under management.

And in my role and in my team's role, I'm responsible for managing all of CalSTRS investments and leading the investment team to generate the types of investment returns we need to secure the retirement future. Over 1 million California educators and to reach our target full funding date in the year 2046.

Now, that sounds like a lot of responsibility, but it goes beyond that because our staff are fiduciaries, and this means that we have a much higher standard, a standard that simply goes beyond doing just a good job.

We have to act in a way that our prudent experts in investments would do and solely in the benefit of our beneficiaries. So while we're urgently investing along this energy transition, we have to keep that in mind, the risk return aspects of that. We do have to also do what's best for our unique membership.

And I think, as it was stated, we have more of our members reaching older and older ages. The longevity is increasing, but that impacts me because I am in charge of the bottom line, which means that we have to generate high, higher returns.

And what that means is the investment team at CalSTRS needs to generate 7% or more than 7% annually. And probably the most important factor to that, and we talked a little bit about this in terms of weathering different environments, is diversification. We diversify our asset base across geographies, across industries, across different types of securities.

And that allows us to weather different global GDP environments like high growth, low growth, high inflation, low inflation, high interest rates, low inflation, and obviously crisis. If you looked at history, we have more financial crises than one would predict. So we need to survive all these things. And diversification is key.

We're also constantly, constantly monitoring and identifying new risks and adapting to the changing landscape.

And towards this end, we strongly believe that climate change poses a serious risk to the CalSTRS investment portfolio and our ability to secure the financial future of our California educators, of whom my wife of 30 years might be the most important, because if we don't deliver returns, I might be sleeping on the couch.

But our ability to do that is, you know, climate change poses such a material risk. And why is it so material? Because it's systemic, it's across geographies. We talked about wars and the rise of China. We have to come together in this global fight. It's across all industries.

It's not just the fossil fuel industry, but all industries are emitting carbon, and it's across all of our securities and asset base. So it's systemic.

And that's why, as Cassandra briefly mentioned, in September 2021, our board, our retirement board, adopted science-based goals, pledging to achieve net zero greenhouse gas emissions across the CalSTRS portfolio by 2050, or sooner and later, they pledged 50% by 2030. So our pledge is in alignment to meet the science-based goals of the IPCC.

To limit global warming by one half percent, one and a half degrees celsius or more within that, to prevent serious planetary damage and the consequent social and economic costs of that. So recently, I was trying to explain the scale and scope of this to my 13 year old daughter. So I'll provide an analogy to you.

In 2023, the world emitted roughly 41 gigatons of carbon dioxide into the atmosphere. And the analogy I gave my daughters. That's like putting 8 billion elephants into the atmosphere. I'm not talking about small elephants, I'm talking about the large five-ton elephants that you might find in Africa. And that 8 billion elephants needs to go to zero.

So, as Michael was saying, what is that going to take? That's going to take over $200 trillion of investment in order to get there. That's got to be one of the largest investment opportunities and largest investment trends that I'm going to see in my lifetime. So we talked a little bit about job creation.

There's going to be tremendous job creation, but also displacement. It's going to displace some jobs. So this has to be a very thoughtful transition, and we're very mindful of our diversity, equity, inclusion, which we infuse into all the things we do, as well as human capital management.

Those are going to be important keys to this just transition and how we do business. But it's also the reason why today we have over 50 billion in low carbon and technology solutions invested, and that's growing rapidly for the CalSTRS portfolio.

Because of the large scope and opportunity set, as well as the systemic risk that we talk about across geographies, industries and all securities. CalSTRS has adopted a holistic framework across the total fund. And I'll briefly touch on this. Kirsty will touch on it more, but it rests on three pillars.

One is decarbonization, meaning that we're managing and reducing emissions across the portfolio. And we've taken a very risk-based approach. We can get into more detail in our public markets. Secondly, it's about engagement. Just like CalPERS, we're influencing companies, financial markets, and policymakers to address the risks of a global low-carbon transition.

Mainly we're trying to accelerate that. Why? Because the world is behind. Michael was mentioning $1.7 trillion of investments. It's got to be closer to 7 to 10 trillion a year, and we're not even near that. And finally, it's about increasing investments in climate solutions. As I stated, currently $50 billion and growing for the CalSTRS portfolio.

I'd just like to end on a note that we've been at this for a long time. We have a longstanding process where we are thoroughly vetting climate risks and climate solutions and more broadly, environmental, social and governance concerns.

How long will we've been, you know, the board adopted our statement of investment responsibility all the way back in 1978. So we've been helping with, alongside kelpers, our colleagues, leading the charge across the industry. So with that being said, I'd like to hand it off to Kirsty.

Great, thank you very much. Hello everybody. My name is Kirsty Jenkinson. I am the Director of Sustainable Investment and Stewardship Strategies, SISS, as we prefer to call it, because it's a bit easier at CalSTRS. Thanks so much for letting me be here. It's my first time in the Legislature, so I appreciate this opportunity.

I'm going to give you a little bit more detail and examples, hopefully on some of the investment opportunities, opportunities that we're seeing when we talk about the massive transition that obviously our world needs to achieve in the next years. It's really important, I think, to frame.

I think Michael and Scott have already alluded to this as well, that this is a very significant opportunity shift for us. We see investments across sectors, across geographies, across asset classes, both public and private markets that meet our risk and return goals today. And that's really important if we think about, again, the numbers that are required.

We've talked to, you've heard it from both of my colleagues here. I can also bring it to life. If you think we need 80 million or upgraded power lines just to kind of give you that visual.

That's just one element of the change that we're seeing and we have to invest in and what makes this so exciting and part of the team that I run and that we're focused on is the pace of change. Change that we're seeing is quite extraordinary.

So in 2010, not very long ago, it took a month to install a gigawatt of solar power. Last year, we were seeing single days when a gigawatt of solar power was being installed. So an incredible pace of change. So very timely to be having this discussion.

Another great example is last year, 7% of global auto sales around the world were electric. That was up from 1% in 2020. So again, this is not happening slowly. Many of these transitions, it is happening right now. So the investment opportunities are right now today.

So in response to a lot of these significant shifts that we've been talking about, our board approved the creation of a dedicated portfolio to invest in climate solutions. And this was three years ago for us. And it's been one of the fastest growing portfolios at CalSTRS. And I feel fortunate enough to oversee that.

We wanted to allow our staff and our investment team the opportunity to supplement the $17 billion of investments that we have in green buildings in our real estate portfolio, or investments that we have in our traditional infrastructure portfolio, where they develop, own and operate one of the largest solar and battery storage companies here in the US, with about 19 power in operation just here in California, and another 1000 power in California about to come online.

So this portfolio was very intentionally to sort of accelerate these existing investments we already have. What's fascinating is that we see opportunities all the way from venture capital, which many of you will know is sort of the higher risk, higher return side.

This is where you invest in innovative, high growth, disruptive technologies that we are going to need to meet our net zero goals. But at the same time, we're seeing investment opportunities in infrastructure investments. These are the heavy infrastructure that we're going to have to have to scale energy transmission and distribution.

Those lines I was talking about, we have to transform our transportation system, decarbonize our industrial processes. So again, think about the investment set is from venture all the way to infrastructure. And we have to do this, as many have said, in a way that protects and recreates jobs and continues to secure livelihoods.

And that transition is incredibly important and what's called and referred to as the just transition, because there will be winners and losers. And we need to make sure that, particularly when it comes to people, that there are winners that come out of this.

We've organized the dedicated climate, sort of accelerant portfolio that I'm describing very intentionally, so that we can both innovate, because we need to have innovation. But also scale.

And that speaks really to what we've been talking about, the scale of the pension funds representing in front of you today, as the two largest pension funds in the US, we have to acknowledge that scale that we have.

So I'm going to give you, if this is all right for permit me, because I think it's perhaps really exciting to me, at least a number of the investments that we're investing in, just to really give you some tangible examples.

And I think it highlights what we do best, which is to invest to protect the retirement security of the 1 million teachers that cassandra was telling you about. So let me first describe a couple of the venture investments. What does that mean?

We have one California based partner, which I'm delighted is also run by two diverse individuals as well, that are investing in disruptive, deep technologies that can materially change an industry. They have radically better unit economics, so these cost less, and they have profound environmental benefits as well. And they intersect.

The investment is really understanding physics and it's understanding finance. So it's a battery and battery recycling and manufacturing company where 99% of the materials are recycled. The costs are 35% cheaper than virgin metal cathodes, and they have 32% fewer emissions. That's a tangible venture investment in our portfolio.

Another one is an electric motorcycle and bus company built for rugged road conditions that's been used currently in parts of Africa. We know the emerging world also has to decarbonize and leapfrog technologies that we are currently using in other parts of the world.

This company is providing vehicles that are two times cheaper than secondhand fossil fuel alternatives, and they have 80% fewer emissions. Again, very clear understanding of cost and environmental benefits if we move slightly down the sort of the risk return spectrum to thinking about some of the infrastructure investments that we have in our portfolio.

We've just established a strategic partnership with one of the largest sustainable infrastructure companies and operating platforms based here in San Francisco and in California. It provides finance for sustainable power, sustainable mobility, sustainable water and waste.

They're creating a joint venture, which is quite close to all of our hearts, to accelerate the adoption of electric school buses across the US. They're also working with Walmart to decarbonize its stores and its supply chain. So think about both of those examples.

When we think about scale, the number of school buses on the roads in our country, the number of Walmart stores, and the reach of their supply chain. These are the kind of investments that really can have a very tangible but cost effective benefit on our economy and on our environment.

And then the third area I want to really highlight is a platform partnership that we made last year that we've created with an organization that's really doing what I think is perhaps some of the tougher stuff out there. It's the hardest to abate sectors. That means really, where is it really tricky to pull and reduce carbon emissions.

It's areas like steel, manufacturing, cement. This group that we're partnering with has made one of our first investments in its first of its kind, large-scale green steel plant, producing steel with green hydrogen, which is 95% lower carbon intensity. Again, incredibly important. We have to decarbonize steel.

We have to show that these innovations can both be cost effective and reduce emissions. And secondly, an area that we're really spending quite a lot of time with this group looking at is natural climate solutions. It cannot be underestimated.

We need to decarbonize the industrial economy, but we also need to think about these new frontiers which are regenerative agriculture, forest restoration, conservation, carbon measurement and verification. Durable carbon removals, where carbon is stored in natural formations.

Again, if you think about the wonders of we have here in California, how we think about this natural climate solutions is something that we as investors need to scale up our investments in as well with the best and brightest that we have in the access to.

So that's a little summary of some of the investments that we're making. I'm going to spend a little bit Shorter time just also touching on the two other elements of our strategy that Scott alluded to around net zero. The second is we are investing in solutions, but at the same time we have to reduce emissions.

Already in our portfolio, in our equity portfolio, which is actually the largest part of our CalSTRS portfolio, we're implementing an emissions reduction strategy. We've allocated 20% of our total public equity portfolio, that's $25 billion to a Low carbon index.

That's where we own more lower emitting companies and less higher emitting companies within a risk budget that we are comfortable and aligned with our overall goals. We currently shifted about 15% of that portfolio. This is one of the most significant trades that we've made, so we can't do it overnight. It has to be legged into.

We do not want to move the market to our detriment. But right now this has already yielded portfolio emissions reductions of more than 10%, with more to come. Similarly, in our bond portfolio, our team is implementing an emissions reduction strategy, again aligned with their risk and return goals, where we've reduced our bond portfolio emissions by 11%.

Already, we're also working very hard to try and measure our emissions better. You might have seen some recent press on, on some of the challenges that we and other investors face in measuring emissions and getting better data. This is tough, but it's going to get better and it's going to get easier.

And disclosure standards that California and the rest of the world is moving towards is going to help us get better at being able to track and understand this analysis like we can, financial data. So that's a little bit about how we're reducing emissions.

And finally, last but not least, to touch on again some of the themes that we already talked about before. We have a role to play within the broader financial markets. We have influence, we have a name and we have assets, and we have scale that creates change.

If you think about where the world is today, 88% of the world's emissions, 89% of its population and 92% of GDP are now covered by net zero targets. That's extraordinarily profound level of commitments.

We now need to make sure that those commitments from companies and from policies, policymakers around the globe are actually being implemented in line with what they have committed to doing, ourselves included. And therefore, there's this accountability, which is really key for us to use our influence to ensure that that is happening.

So how we use our influence with our partners, with the companies and the assets that we invest in is going to help us achieve our net zero pledge. We're getting better data from companies. We need more of it, though.

So we're supporting the International Sustainability Standards board, the SEC, unfortunately, with its challenged rule, to provide us with better disclosure. These are the kind of areas where we need to see change and we can use our influence.

We're also, again, not least with our colleagues at CalPERS, the climate Action 100 plus initiative to focus on the highest emitters in the world is a very critical part of where we can use our shared engagement with companies to reduce emissions tangibly. And I'm going to bring up one final example, which I think is really important.

When we think about high emitting industries and where you can reduce carbon the fastest and the quickest, it's methane mitigation, I should say. My British accent doesn't help me, but methane, I think, is better. So forgive me, might need a bit of translation.

Methane is a greenhouse gas that's 28 times as potent as carbon dioxide at trapping heat in the atmosphere. But its atmospheric lifetime is only 12 years compared to centuries for carbon dioxide. Some methane emissions come from natural sources, but many are a product of human activities, not least from the oil and gas sector and also from agriculture.

So a lot of our engagement and our influence work is focused on reducing methane emissions. They're responsible for 30% of current rise in global temperatures, but they can be tracked and they can be reduced in a cost effective way.

So again, when we think about high emitting sectors, when we think about the oil and gas, when we think about methane, we need to get methane out of the atmosphere as quickly as we can and in a cost effective way, we are influencing companies to do that.

We are seeing tangible change, we are seeing reductions, and that's really, really important. Engagement does work and it does reduce emissions. So, in summary, I hope I've given you a few flavors of the opportunities that we see in front of us. They are immense.

We have to do it thoughtfully, we have to do it carefully, how we're reducing emissions in our portfolio, but also how we're using the influence that we, as a collaborative two funds, do to have a change that we need to see. So thank you so much for the chance to speak to you all.

Thank you guys so much for coming today, and let's bring it back to the Committee. Any questions? Yes, Assembly Member Boerner, thank you.

Thank you for your presentation. It's encouraging that you're looking at reduction in greenhouse gases. And it's interesting that you were talking about, how do you explain climate change and the impact of climate change, what we have to do for our kids. My mom is a teacher and she's in CalSTRS, and I have two kids, 13 and 16.

And when I think about it, we have this dilemma in front of us and it's basically pitting two generations against, against each other. It's my mom as a teacher and my children and the planet they have to inherit from us. And so when I look at it, it's great that you're looking.

It sounds like you have lots of initiatives and you put lots of thought and time into this, but the number one way you could reduce emissions is to divest from fossil fuels. We know they cause emissions.

We know they're part of the reason, and the big part of the reason that our kids are not gonna have the planet that we grew up with. So how do you kind of balance my mom, putting my mom against my children's future? Because that's basically the conundrum that we have.

Well, I really appreciate your view, Member Boerner. Boerner. I can tell you're really engaged in this, both personally and professionally, and we are as well. So I really respect that. And I appreciate your viewpoints. We see it in a different way.

And I think while we're in this fight together, I think we could have different viewpoints on it. So when it comes to divestment, it is a tool that we consider using across the portfolio. It's an investment tool, but it's not a preferred tool.

Number one, we don't believe that if we divested from fossil fuels, that that would solve the emissions problem. Rather, it's the $200 trillion of investments that the world needs to make in order to decarbonize the world. Right? So that's one.

The other is, and I don't think of this as a generational issue per se, because we're all working towards making sure that the next generation is just as equitable as the previous ones. But I do see it. I would call it the 2d is diversification from the investment portfolio standpoint versus divestments.

And for us, we began with, diversification is a real key. Once you start eliminating assets or securities from that available universe, you will be taking on more risk. That's the math. Theoretically, over the long term, the probability is that you'll generate less returns. In the history of CalSTRS, we've divested six times, and that's cost roughly 9.5 billion.

The opportunity gap in terms of the returns loss, now, the probability distribution is not 100%. It could have fell either way. We could have made money or lost money. But the math is certainly, it's like betting against the casino. The math is certainly against you. And so that's another reason.

The other issue, and we described this, is that this is a systemic risk. It's not just the fossil fuel industry, it's essentially all the industries. And so we need to make sure that this transition is occurring across all of the different industries.

And I think very interestingly, as Kirsty was mentioning, as we were decarbonizing our public equity portfolio through investing in this Low carbon index, we found that due doing that across all industries, had a greater effect in decarbonizing our portfolio at much lower risk.

But conversely, if we divested from fossil fuels, it had a significantly less decarbonization effect and at a much greater risk to our portfolio. I'm just trying to explain that this is an all industry, all geography, all sector focus. For us, it's all securities.

One could divest in fossil fuels and still do all the other things.

I'm sorry. Assemblymember. At the beginning of the hearing, we kind of went over some of the. So we'll have this discussion as we have our hearing on Senator Gonzalez's Bill. Sorry, are there any more questions? Assembly Member Lackey?

Excuse me. I just wanted to thank the presenters for validating a very, very, I think, critical point is that focusing on investments that contribute to emission reductions is much more responsible than politically divesting. That likely puts fiduciary benefits at a necessary risk. I mean, as you indicated, the oil industry is adapting.

They have, to the economic conditions that have been set. And the public policy that has been established is forcing them to do so. And so divesting from those industries makes them less able to do that. And so it's all part of the partnership and moving towards a greener, a more environmentally friendly atmosphere.

And so I'm thankful for the points that you're making, is that let's allow you guys to make the financial investments instead of thwarting the program by trying to insert divestments.

Thank you, Assembly Member Hart.

I really appreciate the input from the panel across the board. Describing your global strategies. For both of the systems to increase investments in fossil free alternatives is a great opportunity there. You described that really well. And then also to engage and use your market power with the companies that aren't moving as fast as you'd like.

And step three, you talk about a process where you will consider disinvestment if there's. There isn't enough success in that regard. And then using measurement tools to see and recalibrate how this is all working. And the hearing today is very timely because.

And this question, I think, is for Mister Cohen or Miss Frost, the lawsuit that Exxon filed in federal court to effectively silence activist investors is a direct threat to your engagement strategy. And then I think the news today is that the Exxon investors have rejected the move that you made to vote against the board of directors.

So we have a clear example of a company that is working actively against engagement. What is the next step for CalPERS in that process? Marcia, you want to take that one?

Sure. Yeah, I can start. And then, Michael, if you want to add anything at the end, please, free to do so. So, thank you very much for that question. And again, it's.

One of the reasons I'm actually here in New York is to talk about the rationale behind our, you know, our decision to vote against the entire Exxon board and other asset owners and managers and sovereign wealth funds felt the same way that we did.

That this litigation, even after the proposal was removed by, you know, the two activist funds. And I want to be really clear. Clear that CalPERS and CalSTRS are not activists. We are active owners. But the litigation is very troubling to us.

And as you probably noticed as well, the Texas court has allowed that litigation to proceed, even though, you know, that proposal was withdrawn. So next steps for CalPERS, we will actively monitor this litigation. There may be an opportunity for. For us to file a briefing in this case, but this is something that we'll continue to monitor.

I think the fact that it got the attention that it did, it shows that a shareholder voice, like a CalPERS or CalSTRS, it is meaningful. The intention of putting transparency or putting a spotlight on this litigation wasn't really to unseat the Exxon board. There wasn't another slate of directors being run for this annual meeting.

But it was more very clear communication that we see this as an absolute failure in governance, and governance is the responsibility of the entire board. But we will monitor this and make decisions about what next steps we may need to take.

Well, and I don't expect you to explain today what those next steps are, but I do think that this incident is clearly demonstrates the limits of the engagement strategy in certain circumstances of particular companies and their unwillingness to change their business practices, to effectively engage with CalPERS on the agenda that you have.

And I think it is something that's extremely troubling. And I don't know if that same approach is advocated by the other major oil industries, but I think it's probably important to test that strategy in that sector to know exactly what the response in the companies would be.

Yeah. And I would just simply add that the, you know, we couldn't reach agreement, obviously, with Exxon. Our team has engaged with them. I personally have engaged with the CEO, but we do have very active engagement on the climate side.

We think that those have been, you know, broadly accepted, and we have a clear understanding of what Exxon is planning to do on transition around reduction in carbon intensity. So this is not our engagement as an investor in this company. This was to make clear, very clear, that suing shareholders is not something that we tolerate.

Well, I appreciate you drawing the distinction between the lawsuit and your engagement, but the lawsuit is a direct attack against engagement, and I think it can't be. You've described it as such.

And I think the only thing I would add is our engagement on the climate side certainly don't always yield immediate results. It's not as if you walk in the room, have one conversation, and the company says, zero, we've been thinking about this all wrong. Let's have a change.

So I think there is a level of patience in the engagement process. But I absolutely share your concerns about the underlying process of engagement is under attack here through this lawsuit.

No, thank you Assemblymember for and panelists for clarifying. And I just want to say it seems that pension funds are getting a little taste of what communities that have been living next to these oil refineries have been getting for years.

And whatever the Legislature can do, I think voice is important everywhere, especially if they are defending the intentions and the will of the people of California. And so whatever the Legislature can do to support you in this emerging, what could be an emerging stance of the industry, we certainly want to be a support.

I did have some questions, Mister Cohen, going back to your presentation where you talked about the three strategies of investing in climate solutions, the mitigation, adaption and the transition. As you mentioned, the goal is to get to $100 billion. We're at 40-47.

How does the percentage of invest of your dollars in terms of your strategy, where and how does that shift? Clearly engagement sounds like it's a major focus now, and so it looks like these make sense.

But as you see the environment changing, how will you adapt and how do you utilize and invest time and energy and resources in these three strategies over time?

Sure. I think the answer is that it's going to evolve over the next six years as we move to 2030. And engagement is kind of an overlay in all of those areas. But ultimately we approach all of these investments from an investment standpoint.

So we're going to go to where we think we can earn at least as much, if not more money from an investment in one of these three buckets compared to the rest of the portfolio. My instinct is that transition, as I talked about it, provides the greatest opportunity for the largest checks and the biggest investments.

So my guess is by 2030, that's going to be an area where you'll see the greatest incremental investments. But we're still sort of developing these strategies and you'll certainly see all three of the buckets grow over the next 56 years.

I appreciate that. I'm assuming we will get that update as we have these regular sessions to check in on the shift. The other question I have is more of a general question, and anyone feel free to answer.

On climate change, you address critics who argue that pension Fund ESG initiatives permit companies to cloak themselves in some sort of a public relations greenwashing campaign that shields them from real efforts to get to net zero. Why should we expect shareholder engagement to work to eliminate carbon emissions better than starving those industries?

And when we say starving, meaning starving them of capital? And could that be directed to develop more alternative energy sources more quickly

Yeah, and I don't think it's an either or, that we're certainly, as you've heard, investing in all of those alternatives. But the reality is if we pulled our money today someone else is going to provide an equal amount of capital tomorrow.

So I don't think walking away from the table does anything other than why would Exxon or any other fossil fuel company even return our phone call when we're not a shareholder. So that fundamentally is the core issue that we need to be involved.

And the report in your packet I think answers from an academic perspective that the engagement process is actually making a difference, that by engaging we are reducing emissions and it certainly doesn't have the same sort of satisfaction of zero, we dumped everything, now we're clean, but it's much more effective long term.

Yeah, and maybe just add to Michael's comments, it's about accountability. If you think about our global stock portfolio, we own over 6000 stocks, we own the world. And so it's our job to measure, monitor, understand their plans and hold them accountable.

When they're actually greenwashing, when they're not actually executing those plans, we're going to end up, because we're so large we're going to end up owning their stock regardless.

And if we divest from them, it sends a message and it's something that's in the toolbox that we consider but it's something that would also then start to work into our diversification efforts as well on the flip side as fiduciaries. So it's a difficult decision for us. But I would say first and foremost is about accountability.

If we're not going to hold them accountable, who will hold them accountable? And what, you know, we talked about Exxon, what the boards hate the most obviously is when you vote against them. That's our right, that's how we are going to hold them accountable.

As well as dialoguing with them extensively, our team is engaging with them and talking through their plans and really putting hopefully some decent pressure on them to understand what are the best practices in other companies that we see.

So this is something that we first and foremost really hope to engage them and more importantly hold them accountable and shine a light on that so that the world knows who's actually doing it. And we're fortunate because we have a full team to do it. We know who is greenwashing and we know who's not.

And you need experts to do that.

But that's also something in the US as the two largest pension funds, we have those teams and so we can hold people accountable and shine that light where others may not have that type of expertise, they might have smaller teams and are not able to have the dedication and focus that we are.

No, I appreciate that approach because it is a delicate balance. I think you opened sharing just who your members are. And I know largely women of color who were fortunate enough to get a good government job that gave them a safety net. And you're holding that in the balance with this shifting crisis and holding these companies accountable.

And how do you do that in a way is certainly a challenge, but one that I think is important.

And that's where I want to go to in terms of how you frame the idea of financial risk to pensions. And wondering just at what point, and I think you answered this a bit, Mister Cohen, but at what point do we continue to hold these investments with high carbon emitting companies that would potentially violate the funds fiduciary duty.

Right. Because it, because you talked about the impact of climate change just in terms of flooding and fires and wildfires. Right. And then you also have this, you know, the transition that is possible, that we should accelerate.

But at what point do you say, okay, we have to really look at this issue because on this end, in terms of the impact of climate on our investments, it's not, it's not outweighing, I mean, we're talking about the insurance crisis we have in California, for example, right?

So at what point does it outweigh the actual damage to our environment, to our workers pensions, when we have climate change that is wreaking havoc on every single project that we have? Because frankly, some parts of the country and the world just aren't inhabitable because of the shifts in our climate.

So how do you, where does the, and I know that's a crystal ball, but how do you hold, right, that reality? And what is the trigger to say we can no longer do this?

Because, I mean, Madam co chair, you asked the right and most difficult question and something we grapple with because we are fighting this diversification versus divestment. Right. We know that through diversification we're better able to secure the retirement future of our over 1 million teachers.

But we also know that divestment, it's not going to bring down the emissions. What's really going to be bringing down those emissions is the $200 trillion of investments that need to be made in which we're both jointly making those investments and ushering that sort of into the world.

But at a certain point, as we engage organizations and we believe that these energy companies, they're part of that transition. They need to develop a plan to go from where they are today to maybe more renewable company, for example, in the future. And a lot of those organizations lead the world, right?

So if they have the technologies that are developing, and then they'll lead the world in that. So the engagement has a more powerful effect. However, at a certain point, we have to probably assess engagement. We've engaged this organization and we practice a, a tactic of progressive engagement. Right.

So at first we'll be calling you, understanding your plans, engaging. Then we're going to be asking for you to do more, maybe create the right board structure, the right infrastructure, tell us what your plans are then are you making the right investments?

And then we start to escalate that to, if they're not listening, voting against the board and other escalation tactics.

The far end of that, and this is what we grapple with, is on specific company by company basis, we might need to say, you know, we've done, we've escalated to the furthest point and now we have to consider that tool.

But that's something that we really grapple with given the diversification and the areas of risk that we discussed, as well as the potential for them to lead the technology part of this transition forward. Kirsty, I don't know if you have.

I was just going to bring it back as well to sort of a really point of how we think about it is we have a limited time to create a reduction in emissions, and we, in our individual lives, in our roles that we play in the organizations that we represent, are trying to find the maximum way to have the greatest impact, both in reducing emissions and achieving the goals that we have to for our plans.

And honestly, that's where we have to focus our attention. There is a lot of noise and there is a lot of distraction, and there is a lot of people wanting lots of different elements. We invest, we make good investment decisions, we can deploy capital to solutions.

We have to stay rigorously focused on that because that's where we believe we can have the single biggest impact on the climate crisis. And so I think it's just always bringing it down. So there are many other actors. There are policymakers who need to play a role.

There are global governments who need to set a price on carbon. We can influence that. But where we can have the greatest impact is today in reducing emissions in technologies and in companies and in holding big companies accountable to show a clear transition path.

And it's all about being very clear about what our role is and where our greatest impact can be. And I think we've tried to describe that to you.

No, I appreciate that and I really appreciate that accountability piece and that you're in that conversation on a regular basis. And this is my last question, that there was a recent study from the research and advocacy group, Oil Change International, examined the climate plans for eight of the largest us and European based oil and gas producers.

And I think you referenced this in one of your earlier presentations, BP and Chevron, Conoco, Phillips, ENI, Equinor and ExxonMobil, Shell and total energies, and found that none were compatible. Right. With the UN goal limiting for global warming to 1.5, how can any climate plan adopted by high emitting companies be seen as a victory?

And how do you, as you say, continue to keep your finger on the pulse of accountability moving forward? Just how do you do that? And again, what is the sort of trigger for the final step? As you mentioned.

Maybe, I'll start off with, again, I mentioned, I talked about methane and I talked about why that is such a significant part of it win that we can have jointly. There are oil companies that we know and other forms of agriculture as well, that is emitting methane.

I described to you why that was such a potent greenhouse gas and one that doesn't live as long. So again, it's about, you know, the biggest impact, one of the biggest impacts we can have is to reduce those methane emissions today. We can do that by investing in satellite technology that will track methane emission leakages.

That will give us all clarity around where it is coming from so that we can then ensure that those companies are held account for reducing them. We can also do it by encouraging those companies to join protocols and join initiatives to reduce it and capture it. They are doing that.

So again, I'm thinking about the time value that we have. Don't have a lot of time. Where is the biggest opportunity for us to reduce? It's in areas like that. And so I personally don't want to walk away from that opportunity to reduce a very significant source of global emissions. So that's one very specific example.

But I think more broadly, the accountability. And CalPERS have done amazing work with their leadership on Climate Action 100 plus here. There's a benchmark that benchmarks the progress of all of the companies. It's public, it's out there.

Everybody can see that we're not doing this sort of, you know, it's very transparent that we have a system to benchmark the progress of the transition of the highest emitting companies in the globe. And we have trillions of dollars of assets holding those companies to account. That's great. We didn't have that five years ago.

And so it's organizations and groups like that that are available for the public to see that will allow us to base our information and our investment and also have a voice.

Thank you. And just to add one more thought, I think it is a lot of hard work and it's company by company, not industry wide, that to the extent you're going to have progress, it's going to be on an individual engagement with an individual company.

Not necessarily engaging an entire industry is much more difficult than sitting down with one company. Not every oil and gas company is the same. Some of them are going to recognize that the world is changing and there's financial opportunities in the change.

And those are the ones that we're going to work with the closest and those that don't have a credible science based plan to address climate, eventually we will move away from. But it's not going to be an industry wide approach. It'll be that specific company by company analysis.

Well, I thank you for taking your fiduciary responsibility seriously and keeping this body informed. And we will continue to work together to make sure that we reach that balance that we need. So appreciate your testimony today.

Thank you. Thank you, Senator. A lot of my questions were answered. That's why in the beginning when I said we should just write down wait to ask our questions, I'm the last one that gets to ask questions. So I think Smallwood-Cuevas and some of the other members ask most of the questions. I am a retiree.

I work for the LA County most of my career over 25 years and I am very happy that I get my retirement every month. So thank you, CalPERS.

I'm also happy to hear about the diversity and investment that you guys are doing around climate change because with, I know that we, with the fossil fuel and our electric cars is one space, but I'm glad to hear about recycling because that's one of my pet peeves is I know that we need to do a lot of recycling.

So I'm hearing that you guys are investing in the battery recycling and electric buses and infrastructure. I cannot wait to read about the green steel plants because that sounds very interesting. So it's a lot of spaces where we can go in and we can combat climate change.

So I'm glad to hear about the diversity that you guys have in your investment vesting of my money. My last question is, how is or how will diversity of investment managers integrate into your climate investment strategy?

I think this is really an area where the Legislature has been a great asset. You passed AB 890 a couple of years ago that requires both of us to report annually on our diverse and emerging managers. And so it really gives us a tool to be held accountable for our commitment to diversity, equity and inclusion.

And I think on our annual reporting for our sustainable 2030 plan, one of our key performance indicators is the amount of money we're putting towards diverse and emerging managers. Because in our investment thesis we believe that using some of the managers that haven't always been given an opportunity are critical to outperforming our traditional benchmarks.

So we think annually we're going to see that number continue to go up. Our first report had over $7 billion of diverse and emerging manager commitments and I expect that number is going to continue to rise over time because we are absolutely integrating the opportunity throughout our sustainability report and finding opportunities.

We put a billion dollars last year into a platform that will be providing our board an update in our July offsite in a couple of months in terms of getting the dollars out. But there, that billion dollars I think is going to start to work.

And many of those investment opportunities are going to overlap with the investment opportunities that we've been talking about today in terms of sustainability, because this really is the growth industry for the next 20 years that the entire world is trying to figure out how to transition our economy. And so there's tremendous opportunities.

Michael, if I could, if I could just add one item. So it is a critical part of our sustainable investing 2030 plan. But I think what I'm really proud of is just the allocation of capital in our private equity program, which is a part of the 890 report and a part of the $7 billion in commitments.

But $4 billion of the $10 billion commitments over about an 18 month period of time went to diverse managers. And that was simply because we changed the entry point or changed the way that we invested in private equity. We moved away from so much concentration and mega buyout funds and brought it down into the mid market space.

And that's where we see significant opportunities for diversifying our capital. So I think you will see that in our 890 report. But I felt through this and not at least putting that onto the record as well. Thank you.

Maybe we can tag team a little bit of the response from CalSTRS, but I'm really, I appreciate the question. I'm really passionate about diversity, equity, inclusion. My parents were immigrants here and so they came here to have the children born in a free country, which I've certainly benefited from.

But I get to be in a role now where driving accountability across our platform is one of my top roles. And so at CalSTRS, you know, it's the top three business priority for us in the investment team.

So in all the division's business plans, it's woven into not only from an internal perspective, but as we look to all of our partnerships as well. Secondly, I have to say 40% of our leadership is involved in this as well. So it's not just, hey, it's part of HR, it's part of one person's duty.

We've also hired dedicated resources and all this has led to what we call our diversity investment management strategy, which essentially has three pillars. One of them is internal.

I think you've heard before us, come before you, that we're trying to bring more and more of our assets to manage in house because there's tremendous cost savings when we do that. Over the last five years, we save roughly $1.6 billion in estimated fees, which has been tremendous for the teachers.

So we're trying to ensure that our team, our team of managers is diverse and we've got things to work about. But fortunately, if I gave you some of the stats, I think it'd be fairly impressive considering where we are, maybe 50% of our staff is women by gender and 56% or so identify as ethnically diverse.

And so we continue to build on that. Secondly, it's about engagement. So Kirsty's leading the charge there. We engage corporations. Why? Because just like climate change is one of the biggest opportunities, diverse teams outperform.

So we want to make sure that all of the companies, public or private, we're engaging them on those issues and that's part of the human capital management plan across all our investments, including the climate solutions. And finally, as Michael was mentioning, we've been investing, probably started investing in diverse and emerging managers roughly 30 years ago at CalSTRS.

So again, we've been at this for a very long time. Just quick stats, as you see in AB 280, as we've been starting to define that we did about $4.5 billion of commitments last year in private equity. That's more than 12% of the total commitments we were making. So pretty, pretty significant amount.

And you can look at the report for further information. But that spills all the way into sustainability in our climate investments. And Kirsty, I want to talk about some of the recent investments you've covered most of it.

But I think it's really interesting that, as Marcie said as well, a number of the new firms that we're investing in are by their very nature led by diverse managers. And it's really exciting. They're smaller buyout firms, they're smaller groups of venture firms as well.

And I think there's a really interesting flood of capital and talent from diverse backgrounds and experiences coming into this particular area. And so it's a real opportunity to see that sort of the convergence. I also look at some of the other investments that we've made. You mentioned earlier about South Central.

We have a sort, sort of a really interesting investment that we made in South Central LA to create affordable housing. And just yesterday they ran a massive convention in South Central LA with the Green Building Council there because they're trying to bring, you know, affordability and green building credentials together.

And it's just very, very exciting to see the convergence of these two incredibly important priorities to sort of, you know, create the world that we want to live in.

Thank you. Thank you, guys. Well, that was my last question, and I'd like to thank you guys so much for coming and speaking, speaking with us today. I look forward to working with you guys. I look forward to reading the next report that comes out in November. And so thank you, guys.

There's no further questions from the dais. We will take public comment. We have 20 minutes, but we're going to start with Senator Gonzalez. She'll come forward. I'm sorry. We'll do after Senator Gonzalez, we'll take, have public comment. But thank you guys so much. Appreciate it.

Thank you.

Welcome, Senator Gonzalez.

Thank you, madam chairs. So really just first and foremost would like to thank you each for the opportunity to briefly address the Joint Hearing, of course, on an issue that's been very important to me, but also to the many teachers, firefighters, state and local employees who are fighting to ensure their pensions are safe from climate related risk.

And I would also like to thank the hard working staff at CalPERS and STRS. They've been working very closely with my office, including their leadership and board Members, who are working tirelessly to ensure a strong retirement future for their members.

And I'm also pleased to see many of our pension systems here, both of our pension systems here today continuing their ongoing communication with the Legislature on our shared goal of expanding climate investment initiatives. And I'm also here today not only as a member of CalPERS who is deeply concerned about the risk that climate change poses.

I've had over a decade with the City of Long Beach. Of course, that risk poses to my own retirement future, but also to share the voices of the thousands of hardworking CalPERS and sters members who are also concerned about their pensions not being safe from the tremendous risks that climate change poses.

And I am heartened to hear that the pension boards are taking climate risk seriously by finally adopting initiatives that expand low carbon investments to help ensure our retirement funds are not impacted by stranded assets or long underperforming energy sectors. And as we all should know, climate risk is financial risk.

And so I'm pleased again to see the recent efforts by Calps tsrs to move 20% of their public equity portfolio to Low carbon indexes and CalPERS recent commitment to move $100 billion towards climate solutions by 2030. And I look forward to ongoing discussions.

Unfortunately, where we deviate an agreement on these initiatives is in the over reliance on engagement efforts that's been so talked about and in maintaining investments in the highest carbon emitters. Every California beneficiary should be asking why? Why are our hard earned dollars investing in the very detriment of our society?

Will we continue to ask our firefighters, teachers and hardworking californian employees to keep contributing to our wildfire risk, flooding in our farm communities and extreme heat at our children's schools? These initiatives simply do not go far enough to protect pension holders from the risks of stranded assets.

As said before, resulting from the global transition, and as our firefighters are working to save communities from mega fires and classified employees and teachers work in sweltering heat and unsafe air quality in our aging school infrastructure, it's clear that the inaction is putting all of us at risk.

PERS and STRS members and retirees have made it very clear that these efforts are not aggressive enough and fail to acknowledge the urgency needed. To simply put it, engagement with unwilling participants has not and will not produce immediate and wide ranging solutions that are needed to effectively change the behavior of the worst high emitting companies.

Just yesterday, Europe's largest public pension system announced that they had fully exited from $10.6 billion in fossil fuel holdings, specifically because their engagement policies have failed.

They've acknowledged that. With the catastrophic impacts of climate change already upon us and the latest science calling for immediate emissions reductions over the next five years, not even 10 years, five years, it is extremely clear that advocacy with high emitting companies for piecemeal promises simply will not deliver the changes needed.

Many of these high emitters that climate engagement plans seek to work with have already begun to actually reverse their climate pledges. Companies like BP, are going back on their 2030 emissions commitments.

BlackRock, leaving an engagement strategy through climate action 100, leaving behind effectively $6.6 trillion, or two thirds of their total assets represented by the very Climate Action 100 that has been discussed today.

And ExxonMobil, a company whose net zero by 2050 commitment was often lauded by the pension funds as an engagement victory, only includes in its strategy scope 1 and 2 emissions in its pledge, when an estimated 90% of their carbon emissions, of course, come from scope.

In press statements after helping to elect two new directors to Exxon's board, CalSTRS called it a turning point for the company. But just three years later, the same company and directors are suing, silencing and bullying their own shareholders.

Together, BP, Chevron and Exxon, as Senator Smallwood Goebbels has mentioned, per the Morgan Stanley Climate Index, have an implied temperature rise of over three degrees celsius. That's nearly double by 2050.

And while I applaud the efforts, and I really do applaud the efforts, it may not seem like I do, but I do applaud the efforts for voting against ExxonMobil CEO and board of directors just this very morning.

The fact that this has to be done shows that many years of engagement with big oil has not changed anything of meaning. And as these companies continue to greenwash the public, nothing of substance changes. They remain status quo. They keep polluting with our California pensions, our hard work dollars.

And in a letter I authored in April of this year to the heads of the pension funds, excuse me, the heads of the pension funds. I asked for information about how they measure the effectiveness of their engagement with over 100 fossil fuel companies, which they invest in.

While CalSTRS did not share answers in writing, CalPERS thankfully shared that their primary engagement tools are proxy votes and share owner proposals, of which there are only a few done each year over the last five years, many of which focused on lobbying disclosures.

I share this not to shame the funds for their hard and diligent work so far, but to highlight that in almost a decade of engagement advocacy with a handful of fossil fuel companies, there has been no impactful change to the status quo of how companies operate.

While our global temperatures continue to march to a point of no return, our own Governor and Attorney General are currently suing ExxonMobil, BP, Shell, Chevron and ConocoPhillips on behalf of our state for misleading the public about climate change for decades.

Yet our pension systems again simultaneously hold a combined investment portfolio in these companies of $6 billion. I will end by noting that any real climate initiative that protects worker pensions must also contain aggressive strategy to exit these companies now, not later.

Thousands of teachers and state workers have made their voices clear and heard on this issue and have resoundingly shared they do not want their hard earned retirement funds to be invested in these primary drivers of climate related financial risk. I urge the Committee today and in the future to continue its rigorous oversight of these climate efforts.

Keep asking the questions, and continue to work with the pension boards and their leadership to ensure that California's retirees are truly safe from climate risk.

With millions of acres of forest fires each year, decade long droughts, classrooms filled with smoke and playgrounds and workplaces with triple digit temperatures, at what point will we recognize that there is a public interest and a fiduciary duty and responsibility to abandon engagement and protect our pension holders?

I thank you again to the Chairs McKinnor and Smallwood-Cuevas, our Committee Members, and, of course, consultants, panelists, Committee staff, and the members of the public that have so adamantly said no to more investment and to continue to divest our pensions. Thank you very much.

Thank you for your remarks. Senator Gonzalez, thank you so much for coming over.

Thank you.

We'll now turn to public comment. You may line up to speak into the microphone, but do not touch the mic, you guys. And we'll, you want to take them first? Oh, I'm so sorry. I had you line up. And we're going to take. But we're going to hear some comments from our California Professional Firefighters. I apologize.

You guys have a seat just for 1 minute. We'll now hear from our California Professional Firefighters, California School Employees Association, and Building and Construction Trades. You have five to seven minutes total. Not each. Total. Yes. Thank you. Sorry about that, you guys.

Thank you so much. Good morning, madam chairs. My name is Cassie Mancini, and I'm here on behalf of the California School Employees Association. CSEA is the largest single state union in the country, representing more than 250,000 classified school employees and retirees. A bit of history.

Our union was founded in 1927 by a group of custodians in Oakland who came together in order to secure pension benefits for school employees who couldn't afford to retire. And our unions fought tirelessly against efforts to undermine the stability and Independence of our pension system.

It was a CSEA Member, Peggy Claypool, who sued Governor Pete Wilson back in 1992 after he stole $1.6 billion from CalPERS to solve a state budget deficit. That lawsuit was unsuccessful, but ultimately spurred the passage of Prop 162 that ensured the Independence of the CalPERS board and gave ultimate authority over investment decisions to the board.

It's that long history that informs CSEA's perspective on pension issues and our activism before the board. A group of CSEA members and retirees attend CalPERS Board Meetings every month to monitor board items, provide input during public comment, and ensure that CalPERS is acting in the members and retirees best interests.

CalPERS members also vote to democratically elect board Members that represent their values, and as we've seen today, those values include environmental stewardship. The CalPERS board is investing $100 billion in climate solutions over the next six years and selling investments that don't have a credible emissions reduction plan.

We were also very glad to see the board in November adopt a set of labor principles on issues including the right to collectively bargain, forced labor, child labor and discrimination. CSEA is proudly holding CalPERS to its pledges.

We recently joined Fossil Free California, the California environmental voters, Clean Water Actions, SEIU California and many other labor unions, and a letter urging CalPERS to vote against the Exxon board of directors for their dangerous lawsuit.

Shareholder engagement is an important and viable accountability tool to achieve change, and it's up to the CalPERS board to determine when shareholder advocacy is no longer fruitful. I'll end with this classified employees are some of the lowest paid members of our school communities. Over half of CSEA Members make less than $40,000 a year.

Many of our Members could make much more money elsewhere working for a higher wage, but they stay in schools, not just because they're passionate about public education, but because of their promised pension and the stability that pension brings in their retirement. It's no secret that the impacts of climate change are disproportionately felt by Low income people.

But now CalPERS is the challenge of ensuring that as our economy transitions away from fossil fuels, public employees don't also shoulder the burden of that transition at the bargaining table, which often happens when employer contribution rates increase year after year due to unfunded liabilities.

The strategic and thoughtful approach to achieving carbon neutrality that CalPERS has presented is a good one, and CSEA will continue to hold CalPERS and CalPERS board members to that plan. Thank you.

Thank you, Madam Chairs. Doug Subers on behalf of the California Professional Firefighters. CPF represents 35,000 professional firefighters and emergency medical services personnel statewide, and a majority of our members rely on CalPERS for their secure retirement. So many of my comments today will be about CalPERS. They likely apply to CalSTRS as well.

Thank you for hosting this important hearing today and both of your comments at the outset of this hearing, we do appreciate the work that CalPERS is doing to ensure the retirement Fund is healthy and sustainable. California's firefighters rely on and pay for the promise of a secure retirement.

Oftentimes, our Members make tough decisions at the bargaining table about their salaries and other benefits to protect their retirement. In turn, our members, trusted CalPERS, is acting as a fiduciary with contributions put forward by our members directly and contributions made on behalf of the employer.

Many California's firefighters do not receive Social Security, so when they retire, their loan retirement allowance is based upon their retirement from CalPERS or a county retirement system or a charter system.

A little earlier during panel one, there was a discussion about PEPRA and kind of the interactions that employees and PEPRA has under the law. For firefighters or other public employees hired after 2013,

there's a statutory requirement in Government Code section 7522.30 that requires the employees to pay 50% of the normal cost share contribution rate and that employers cannot subsidize that. So, in turn, when the normal cost rate or contribution rate goes up for employees to pay for their secure retirement, it directly comes,

half of that directly comes from the employees. So anything that would any actions that impact or destabilize or reduce returns is deep concern to CPF and our members. Additionally, a secure retirement for our members is critical as firefighters face significantly higher instances of occupational injury and illness.

So I know there was a little discussion earlier about some parts of their society living longer and longer. We hope that to be the case for firefighters, but oftentimes they experience injury and illness that does shorten their lifespan. As an example, the International Agency for Research on Cancer has classified firefighting as a group one carcinogen.

So as a result, it's imperative for a firefighter and their family to have a secure retirement in the unfortunate scenario where they are stricken with occupational illness. In regard to the discussion today, CPF supports CalPERS efforts to maximize returns in a sustainable and principled manner, including portfolio diversification.

CalPERS has taken steps to adopt sustainable investment strategies, as we discussed today, that include that align long term investments with technological innovation, response to climate change, and other important priorities like labor priorities mentioned by Miss Mancini. Moreover, as we heard today, CalPERS has stepped up and will have their voice heard to protect shareholder rights.

And we do think that a engagement is incredibly important not only to ensure that companies are doing the right thing, but also to protect the investments made by CalPERS on behalf of our members.

CPF supports the action that CalPERS took today and was discussed by Miss Frost and thinks that continued engagement by CalPERS in the retirement systems is really important to not only ensure the investments they make are seeing success, but also commitments made by companies are being followed through.

CalPERS has also increased transparency around investments and sustainability of the investment portfolio, and I know there was some reporting that was discussed earlier.

Also, reporting by SB 964 looks specifically at climate related investments and disclosures, and we think that could be an important tool for all stakeholders to look at and understand the evolution of sustainability efforts within the portfolio.

In closing, CalPERS holds and invests our members hard earned dollars and we support them in acting on their fiduciary duty to seek returns that are short, strong and sustainable. And we really appreciate the opportunity to come in here today. Thank you.

Thank you. Thank you so much. Now we will move to public comment. We have 20 minutes for public comment. So if you, if everyone doesn't get to, you know, make it shortened and meaningful so that everybody behind you will have an opportunity to speak once the 20 minutes is over.

If you don't get to speak, you can submit your public your comments in writing so you may start.

Thank you. My name is Jane Vosberg. I am a CalSTRS beneficiary and Board President of Fossil Free California. For 10 years, CalSTRS has ignored the pleas from teachers, professors and their students to stop funding the industry that is knowingly caused and continues to perpetuate the costly existential climate crisis.

As long term investors, it is irresponsible to continue investing in an industry that is being replaced by the rapid global transition to cheaper renewable energy. Mounting lawsuits filed by communities, including the State of California, for deceiving the public for decades and costing the state billions pose another major threat. Excluding fossil fuels will not hurt the fund.

Asset managers who've already done so have earned equal, if not better, returns. Shareholder engagement with the fossil fuel industry has failed miserably. The industry continues to explore and drill new wells with abandon, and it continues to deceive asset managers into believing that carbon capture and storage is a viable solution. It isn't.

Before they become stranded assets, legislators need to protect our pensions by mandating CalPERS and CalSTRS rid their portfolios of such toxic investments and thank you.

Thank you. Hi, my name is Cynthia Kaufman and I'm a Faculty Member at De Anza College and also a CalSTRS beneficiary in the future. I wanted to address my comments to the study in your packet entitled divestment and engagement. The study purports to show that engagement is better than divestment for shifting companies greenhouse gas emissions.

But what the study doesn't do and what it makes, what makes that study irrelevant to arguments around divestment versus engagement is to actually study the effects of engagement on fossil fuel companies. CalSTRS and CalPERS have done really important work engaging companies to achieve diversity goals and sustainability goals, and they're doing excellent work in sustainable investments.

But shareholder engagement has never gotten a company to change its basic business model. Fossil fuel company assets are based on the extraction, refinement, and sales of fossil fuel products. Those companies are not diversifying, and they continue to put out misinformation and to engage in obstructionist politics.

And that's why the Governor and the Attorney General are the fossil fuel companies that CalSTRS and CalPERS are invested in. So if you really look at the impact, divestment will have a tremendous political impact. And that's what we're looking for. Thank you.

Good morning. Almost good afternoon. I'm Bill Fostberg and I'm a retired teacher and a CalSTRS pensioner. In 2017, my wife and my family and I lost our home and everything we own to one of the California wildfires. We're not alone. In Sonoma county that week, over 8300 other residents lost their homes and all their possessions.

And since 2017, throughout the state. So here, technical difficulty. Here, wildfires have cost, have cost hundreds of lives, destroyed thousands of homes, burned millions of acres, and cost hundreds of billions of dollars in property damage. And they're going to get worse. This year, State Farm just dropped my homeowners insurance and along with over 100,000 other people.

Now I may have to go to the California fair plan. My recent quote for that was $5,600 per year. I was paying $1,000 per year. So these increased fires are a direct result of global warming caused by burning fossil fuels. And those companies have known and lied to us about the effects of their products since the seventies.

And since fossil fuel companies are the direct cause of so much harm to California citizens, it's hard to comprehend why CalPERS and CalSTRS would continue to invest in those companies which cause so much death, destruction and harm. Thank you very much.

We're at about 16 minutes.

Yeah. Madam Chairs and members, I want to thank you for having this hearing. My name is Paul Guerrero. On behalf of the Western States Petroleum Association. Not going to talk about the Bill. A few people that testified before me said these are high risk investments. I can tell you that we had an economists do an analysis.

If divestment occurred in 21-22 and the findings of that analysis was that the earnings CalPERS earnings from oil and gas investments affected about $1.0 billion in 21-22 a return of 18.7%. The rest of the CalPERS stock portfolio fell by 13.5, lagging oil and gas returns by 32% during that year.

CalSTRS the total earnings in oil and gas investment affected by divestment was about $750 million, a return of about 18.7%. This compares to 16.9% loss for the rest of the CalPERS portfolio. So these are real investments, they are not risky. I applaud the hard work CalSTRS and CalPERS are doing with engagement.

With that, I thank you very much for having the hearing.

My name is Sheila Thorne. I'm a CalPERS beneficiary. A joint report of the Senate Committee on the Budget and the House Oversight Committee, released just last April, this April of 2024, says, quote, despite fossil fuel companies pledging to meet various emissions reduction targets, internal communications show that they continue to promote a future dominated by oil and gas and routinely take actions that are directly at odds with their pledges.

For example, a 2020 calipers addressing climate change report lauded Chevron's announced redemption production goals for greenhouse gas intensity and production. Nevertheless, Chevron's oil and gas activities have increased, producing a record 3.1 million oil equivalent barrels a day, thus increasing overall emissions.

In the same doublespeak, Exxon promised reductions in flaring and methane emissions and then confirmed this year that it would continue to increase oil and gas production by about 10% over the next four years and double production in the permian basin.

Shell promised, quote, net zero carbon emissions by 2050 and net zero carbon emissions from the energy products we sell. However, a Financial Times article revealed a disclaimer that Shell will not change its capital deployment plans until society acts.

It is going ahead with new projects in Nigeria to produce 20 million tons of liquefied natural gas a year and now concedes that "the 2050 target is currently outside our planning period." Unfortunately, CalPERS voice has not been heard. Whereas divestment is a political pressure, the only kind of pressure to make big oil change. Thank you.

We've contributed tens of thousands of dollars from our hard earned paychecks in order to vest. And just like any other pension, saving for retirement through a 401K or an IRA, we deserve to have the ultimate say in how our money is invested to guarantee good returns.

CalPERS board Members are accountable to us, the people who've put our money into the system. We elect the board with the directive, ensure that nothing will threaten the pension I've been promised for my service or the viability of that pension for future generations of public servants.

I'm glad we're having this discussion on CalPERS's emerging climate initiatives and the good our investments can do. But I hope we don't lose sight of the grave consequences for retirees and active Members if the stability of our pension system is threatened by future dips in the pension's funded status. Thank you.

Thank you. We have 10 minutes.

Thank you. I'm Sandy Emerson from Fossil Free California, a longtime research volunteer. When I first became a climate activist in 2014, I was galvanized by the fact that the Rockefeller Brothers Fund divested from fossil fuels. The Rockefeller Brothers Fund is still thriving, and global divestment pledges now represent more than $46 trillion.

Our pension funds have the tools and the power on their own to exclude fossil fuel companies from their portfolios. For example, in 2018, CalSTRS decided not to include Saudi Aramco in its custom benchmark, and it immediately added that to the divestment impact calculator that both funds maintain.

You might be interested to know that with the exception of to tobacco, all divestments to date are now producing net positive returns with shareholder engagement. The power rests with the corporation, and shareholders are petitioners. Exxon is now suing shareholder activists to deny them even the right to petition.

As you know, California is suing five oil majors for climate damages and disasters. Exception. Exxon, Chevron, Shell, BP, and ConocoPhillips represent 40% of the market values of our pension funds largest fossil fuel investments.

Just those five staying invested and hoping that engagement and green values will change the behavior of fossil fuel companies keeps the power in the hands of companies that are threatening all of our futures. Thank you.

Hello, my name is Miriam Eide, I'm the Executive Director at Fossil Free California, and I wanted to share one highlight on engagement and then also share a response to the study. So regarding engagement, there was a lot of discussion about engagement with companies such as Toyota and the 30% reduction in the car's emissions over its lifetime.

That's excellent. That's a perfect example of engagement. What isn't a perfect example of engagement is engaging with a company whose mission is investing in climate crisis. Fossil fuel companies cannot become something other than fossil fuel companies. That's where engagement fails.

As for the study that you all received, I shared it with Tom Sanzio, who is the former deputy controller in New York and now works for the IEEFA, Institute for Energy Economics and Financial Analysis, which puts out a lot of reports on financial analysis and the climate crisis. His response to the report was this.

The proof in the report is elusive. He said, in fact, that the. Sorry. The next argument is, it seems to say that any form of investment action that results in lower allocations of fossil fuel holdings cannot possibly reduce emissions, and that is erroneous. CalSTRS is itself reducing their emissions by lowering their carbon indexes.

And so our own pensions are working. Against the arguments of this study, I would suggest that you really dig into it a little bit more. The other piece that I would look at is how they're measuring the scopes and which companies they're investing in.

One of Thom Sanzio's colleagues identified that Shell reported scope one footprints of 82 million metric tons of CO2, whereas if you looked at their scope three emissions, that was 910 million metric tons. So the vast majority of their carbon footprint was not studied in this study. They were only looking at scope one.

So just wanted to highlight a few things for you. Thank you so much.

Okay, we have about six minutes remaining, so we want to try to get to hear a little bit from everyone, please. Thank you.

Thank you. Good morning. Ruth Holton Hodson CalPERS beneficiary and representative of third act we certainly appreciate what the pension funds are doing, but frankly, fear that they're just not moving fast enough. Science tells us there is no time to waste transitioning into the green energy economy.

According to UCLA's heat index, for example, in 10 years Kern County will experience two months of over 100 degrees. That's a month more than they do today. And in nearly five months of over 90 degrees, significantly affecting residents, particularly those in Low income communities and marginalized communities and the economy.

The worsening effects of climate change will, I hope, spur faster movement away from fossil fuels, which will significantly reduce returns from fossil fuel investment. The question is, will the pension funds move out of their investments in time before incurring significant losses?

Already, with the exception of the last three years because of the war in Ukraine, studies have shown that fossil fuel returns in the last 10 years are far below the return of the s and P 500. The funds fiduciary responsibility is to maximize returns staying in fossil fuels. Is it bad for the funds and the beneficiaries? Thank you.

Madam Chair, Committee Members, my name is Patricia Pavone. I'm a retired state employee and a Member of PRRS. I believe it's imperative that PPRS and stirs develop an evolving, effective and sustainable strategy to divest from the fossil fuel industry and redirect funds to green energy and other investments that are good for the environment.

Our public pension boards have a duty to take significant action to reduce the climate risks and weather catastrophes that may rob our youngest Californians of good health and prosperity in the years to come. Thank you.

Good morning. My name is Diana Curiel and I'm a CalSTRS beneficiary. In the last several years, CalSTRS has been making progress managing climate risk in its investment portfolio. However, there is still much work to be done.

As an example, 51.6% of its public equity portfolio is not aligned with the Paris climate agreement, and 15.2% of the portfolio is aligned with a temperature rise between 3.2 and 10 degrees celsius. This is an alarming red flag. CalSTRS has a long held belief that engagement with the fossil fuel industry is preferable to divestment.

However, attempts at engagement have been worse than effective. Net zero by 2050. Pledges are not only too late, they rely on unproven, expensive and potentially hazardous carbon capture technology to achieve emissions reductions. Continued investments in the fossil fuel industry have enabled companies such as Exxon Mobil and Chevron to plan for expanding production.

Rheostat Energy has estimated that the total which the top 10 companies plan to use for this expansion by 2030 will be over 600 billion. We can't enable the unscrupulous fossil fuel industry to delay the energy transition.

Hi there. Trina Lee, CalSTRS and grateful CalSTRS Member. Fossil fuel companies produce a dangerous, unsustainable product. It doesn't matter how much we engage or encourage, that's what they make. Fossil fuel companies create more harm in the world than good in our portfolios. And that's why I hope that my retirement Fund will remove itself from fossil fuel investment. Thank you.

I'm Judith Small. I'm a CalSTRS beneficiary and a former high school teacher. I'm also the grandmother of four little girls. The oldest turned seven just last week. They are one of the reasons I'm here.

These four little girls, along with all my former students whom I've seen move and grow out into the world as an educator, a parent, a grandparent, I want to see them grow into a world that's still livable, a world that bears some resemblance to the world that I grew up in and that I came to love so fiercely.

Because young people change so fast. They grow up so fast. Layla, my granddaughter, who turns seven, will be 17 in just 10 years. And wildfires, hurricanes, floods, these also move fast. We need to move fast as well.

I applaud what's already been done, but I urge that within the parameters of fiduciary responsibility, the complete decarbonization portfolio occur with all possible speed. Thank you.

We have about a minute, but I'm going to take a point of privilege and give the last two people a chance to speak.

Thank you and good afternoon, Madam Chairs, Committee Members, and Committee staff listening into the hearing this afternoon. My name is Doctor Pierre De R. I'm a CalPERS retiree Member. I started my state career after my PhD at UC Davis in environmental policy and economics. My career started at fish and game doing environmental pollution damages, oil spill cases.

I worked for Department of Finance under Michael Cohen for a few years on the economic impacts of major regulations. But the bulk of my career was at the California Energy Commission as a climate change program manager for two decades. I believe I was the first full time climate policy position in state government in 2001.

I participated in a lot of bold legislation that came out of this building from Fran Pavley's AB 1493, the automobile greenhouse gas rule, AB 32 that Governor Schwarzenegger signed. These were bold legislation that came out of the Legislature, and I think we need to have even bolder actions now on climate change.

The pace of our solutions is, is not keeping up with what scientists demand. A net zero by 2050 just is not going to work. I would encourage.

Thank you. Your time is up. Thank you so much. I'll be really quick.

Thank you. Just wanted to make the point and reiterate that in the CalSTRS report, it has 2050 as the date for net zero emissions. I just want to reiterate that that's not soon enough for the impacts we're having. In fact, we have goals we have to reach in five years. Like Senator Gonzalez said.

The second point is that Calper's own report admits that companies in the climate action 100 plus group that they engage with, only 9% have targets in line with the Paris agreement goals, and only 8% had lobbying efforts aligned with necessary climate action.

The next point I want to make is that studies have actually shown that when there was no investment in fossil fuels, the pensions would have actually gained.

There was a study done from 2009 to 2019 if divestment from fossil fuels had occurred, because it's a risky investment, the pension funds would actually have been 11.9 billion richer for CalSTRS and 5.5 billion richer for CalPERS.

And I just want to also reiterate that the policy of engagement is great and applaud those efforts from the CalPERS and caltras boards. But as Mariam mentioned, it's ineffective for fossil fuel companies when they've lied to us for decades and decades and have shown failure.

We shouldn't be doing the same thing over and over again and trusting them to become truly greener. Okay, I'll end with that. zero, and the last thing I'll just say is that I'm happy about the vote against the board of directors.

But the truth is those pension funds are still investing in Exxon and there's no real consequence, which is why we sometimes need the Legislature to step in and give their input as well, because there's no consequence to Exxon. True consequence right now. Okay, I'll end with that. Thank you.

Thank you.

Thank you. Madam Chair and staff, Mitch Steiger with CFT, a union of about 120,000 educators and classified professionals across California. We'd like to just speak broadly in support of all the climate measures mentioned earlier. We definitely endorse those and encourage more of that. Definitely moves us in the right direction.

We would also very much align ourselves with the comments of Senator Gonzalez and previous speakers in favor of a more aggressive strategy in moving away from fossil fuel investments.

We think that the evidence is pretty clear that not only would the Fund be better off had we divested earlier, but that these companies see the world pretty fundamentally differently than our pension funds should.

We have Members right now who are paying into these funds, who will need those benefits to be there 7075 years from now and at a return? We think these companies have made pretty clear choices that they're not thinking about 75 years in the future.

They're thinking more about the next quarter and the quarter after that, maximizing returns in a pretty short sighted way. And that on top of the fact that this is really workers money. It's been mentioned by a few speakers.

This is money that would be in our pockets right now had we not set it aside for our own futures. In that respect, it should really reflect the values that we hold.

And these companies have shown that they don't share our values, that they are about something very different than what our pension funds should be about, and that in the interest of making sure that our funds not only are there and healthy 75 years in the future, but that we have a planet worth living on 75 years in the future, we would encourage moving in that direction and moving away from fossil fuel investments.

Thank you.

Thank you.

Well, I want to thank all of the stakeholders and presenters today for your comments, your information, your strategies, but most of all, the sense of urgency that was shared today in terms of how the state must work and what partners we need in our state pension funds to accomplish the goals that we all know our life or death for our state.

I want to personally just say it was good to hear workers and unions holding the pension funds accountable for how their dollars will be spent. It was also encouraging to hear that pension funds recognize how important their role is in ensuring high road investments and accountability as we look at this climate crisis.

I want to thank my good co chair of this meeting, Chairwoman Assembly Member McKinnor, for her role in navigating what could have been a very contentious conversation. But I felt like it was a productive conversation that helped us get the issue on the table and to figure out our way forward.

And we look forward to the next time that we come and we will be stronger and better than where we are today. That is my hope and my commitment as a Legislature to make sure that California moves forward for a cleaner, greener and safer climate for all of us.

Thank you. Thank you, Madam Chair. Thank you, Senator, for coming over here to our chamber. We appreciate your leadership in this issue. And again, I thank you.

I want to thank each and every one of our expert panelists for being with us today to share incredibly important information regarding the financial status of our state pension system and their emerging climate investment initiatives.

The subject of climate change is controversial and highly politicized, but it is extremely important, one based on the simple fact that climate itself affects everyone and everything on our planet. And in California, the effects of climate change are increasingly evident. I found all of the information presented here today extremely valuable and positive.

It shows that a tremendous amount of time, effort and resources, through deep research and analysis by their own experts and the decisions of their response boards, have further motivated the systems to move in a direction to help effect meaningfully change in this space and within a complex environment that has both opportunity and risk which demand attention to detail and monitoring based on a prime duty owed specifically to pension system Members.

It's not within CalPERS and CalSTRS legal duty to invest to solve the climate crisis, but to me, the activity and meaningful, meaningful presence to presents today that they're taking plans that they should to recognize and appreciate that we have climate change.

Their strategies will align with and assist the state to ultimately achieve its overall climate goals while balancing the long term financial stability of the system and providing retirement benefits to their present and future retirees.

I'm excited about what, about what I've heard today regarding these efforts and as they continue their work on this front, I look forward to monitoring that progress. I also want to thank Members of both committees who's not here now, but I hope you could see me on TV land today for joining us and listening.

Before I wrap up my closing remarks, I want to take this opportunity to publicly recognize and thank Christopher Almond, the Chief Investment Officer of CalSTRS, who will be retiring on June 30 this year after nearly 24 years of faithful and excellent service to CalSTRS and its Members. Thank you.

Chris couldn't be here today, but for those who don't know, Chris is a renowned expert and well respected voice regarding investing in the financial markets industry.

Annually, he has been named among the top hundred Global CIO's, named CIO of the Year in multiple publications, chaired and co chaired or been a board Member of various investor groups, received two lifetime achievement awards for his work, been a regular guest on CNBC and Bloomberg TV and is one of the longest serving CIO's in the country.

Chris, if you're watching this hearing, congratulations on your upcoming retirement and try not to be like me and go get another job. I'll now well, my co chair has already said thank you. I also want to thank every single one of the public that came in and testified and gave their remarks.

I want to let you guys know we hear you. We see you. I think the board also hears and see you. And you can tell by their action in their investment and how they're turning towards helping to combat climate change.

But I also want to thank everybody that's here in the back, too, everybody that came in, thank you so much for your time. Can't wait to work with you. Thank you. And this meeting is adjourned.