What CalSTRS’ data problems mean for pension funds’ climate goals

The giant US-based pension fund California State Teachers’ Retirement System (CalSTRS) made headlines this week after it delayed the publication of its latest climate report until 2025.

The $331bn (£264bn) fund said the delay was due to the discovery of “significant data and calculation issues” related to the way it calculates its carbon footprint.

Janice Turner, co-chair of the Association of Member Nominated Trustees (AMNT), acknowledged that many UK schemes had also encountered data issues related to climate reporting – but emphasised that trustees should still focus on taking affirmative action.

“All this data helps pension schemes to ascertain the impact their investments are having on this global emergency and therefore helps them to work out how they can act to reduce it,” she said.

“However, these metrics of measuring climate change are still in their infancy so it’s no surprise that some have had problems. In the UK there has been a major issue with scenario analysis with many pension trustees and the industry questioning the basis of how one method of measuring a four-degree scenario was being calculated, and alternative methods have had to be developed.

“But what is more important is what pension schemes are actually doing about climate change and global warming. The most accurate data is worthless if it doesn’t translate into action against climate change through investment strategy.”

‘Get to grips’ with the data

Yann Bloch, head of product and pre-sales for the Americas at software company NeoXam, said it was important that schemes get to grips with how they manage data. 

He said: “Calculating carbon emissions and other climate-related risks is a notoriously difficult task as many firms, including CalSTRS, are now realising. At the heart of the issue lies the fact that the accuracy, consistency, and quality of climate-related data is continually evolving, with the data arriving in many different forms, and from a plethora of different suppliers.”

Pension schemes and asset managers need to have “the best possible data to hand” to comply with current and emerging reporting requirements, Bloch added, meaning they needed “modern data infrastructures that are designed with the intention of managing the deluge of data that is now an innate part of the fund management landscape”.

Tegs Harding, member of the Association of Professional Pension Trustees’ (APPT) ESG group, said it was important for pension schemes focus on “forward-looking risks” rather than relying solely on historic emissions.

“In the climate space, forward-looking measures are arguably more useful for assessing forward looking risks than relying solely on historic emissions,” Harding said.

“Disclosures based on good quality data are of course important, but more important is the action that investors can take using the data they have. APPT believes institutional investors can play a critical role in greening our economy through capital allocation and through their stewardship activities. We encourage our members to focus on these actions to manage these risks on behalf of members.”

Kate Granville Smith, director in the pensions team at law firm Burges Salmon, highlighted that CalSTRS faced different challenges to UK schemes. UK trustees have an obligation to obtain emissions data “as far as they are able”, she explained, meaning they must “take all such steps as are reasonable and proportionate in the particular circumstances, taking into account the costs or likely costs and the time required to be spent”. 

She continued: “In the Pensions Regulator’s recent review of climate-related disclosures it noted that trustees could improve future reports by continuing to extend coverage of emissions data, focusing on the areas most exposed to climate-related risks, and considering obtaining estimates to fill gaps.

“As TPR’s general code says, trustees are not currently required to align their investment and funding plans with any particular climate change goals but they may wish to examine how their governance practices and investment decision-making take into account global progress towards those goals.”

CalSTRS’ data dilemma

CalSTRS disclosed its problem in agenda notices for a meeting of its investment board on May 1, with the Financial Times subsequently reporting the delay.

The pension fund said the issue arose due to problems in determining its “ownership” of a company’s carbon emissions relative to the value of its stake in that company, particularly when there were differences in the reporting dates for these data points.

The agenda note stated: “During the 2022 emissions measurement process, staff discovered that the equity and debt values provided did not align with CalSTRS’ portfolio market values provided by State Street Bank [the fund’s custodian].

“Further analysis showed that while we can get timely year-end values from our custodian, our data service provider was relying on companies to provide their year-end debt and equity values and these disclosures were being provided at varying points in time throughout the following year.

“This mismatch in the timing of equity and debt valuation disclosure was strongly influencing emissions calculations and yielding inaccurate results.”

Further reading

How TPR rates trustees on climate action (18 April 2024)

How schemes are holding companies to account on climate change (13 January 2024)

First climate change reporting fine issued by TPR (28 September 2023)