CalPERS’ climate-crisis pitch deck

CalPERS, the behemoth pension fund for California’s public employees, is all-in on climate investing, if its pitch deck is anything to go by.

At its July board meeting, Peter Cashion, managing investment director of sustainable investments, laid out CalPERS’ progress toward its $100 billion earmarked for climate investing.

Six months after launch, the fund has deployed $1.1 billion across nine deals in categories including energy distribution and electric boats. It has another $3.6 billion in the pipeline across climate funds and co-investments, most of which are private equity or infrastructure plays.

It’s also doubling the headcount of its sustainable investments unit and has even considered tying climate KPIs to employees’ annual incentive-based compensation.

“We are really in the midst of a climate revolution,” Cashion said.

Timing the market for climate investing has been a fickle task. More than 90% of cleantech companies funded between 2008 and 2011 didn’t return their initial capital invested, an MIT Energy Initiative report found.

In 2021, climate funds came roaring back, and they have stayed resilient even as private markets took a nosedive the following year. Climate-focused funds attracted nearly 5% of all LP capital committed to venture in the first half of 2024, up from 2% in 2023, according to a new PitchBook analysis.

The perception that sustainable investing comes with a tradeoff on returns has had a dampening effect on LP commitments— even though the data doesn’t support it. PitchBook analysis found no statistically significant difference in performance between signatories to the Principles for Responsible Investment, a UN-supported investor network, and non-signatories across private equity, real estate and assets, and private debt funds.

“Do we really believe as a world that climate issues are going to go away? No— that’s one of the biggest growth markets of the next decade,” said Dr. Johannes Lenhard, co-director of VentureESG, a non-profit which advocates for responsible investing by VCs and LPs.

Still, the geographical divide is growing. While pension plans like CalPERS and the New York State Common Retirement Fund accelerate their climate commitments (the latter doubled its sustainability portfolio target to $40 billion earlier this year), dozens of anti-ESG bills are working their way through state legislatures across the country.

LPs in states with anti-ESG policies don’t want to miss out on the upside. So instead, they’re ‘greenhushing’: they’re asking that buzzwords like ESG be excluded from legal documents, but their investment offices are still committing capital to funds-of-funds with sustainable investing bents.

“They are saying: ‘we are closing our eyes, because on the ground, we as the investment team know that this is beneficial for everyone involved. Just don’t talk about it’,” according to Lenhard.

Cashion, and CalPERS, are aware of the broader political landscape. “There are few straight lines in investing,” he cautioned board members, citing the risk that political changes introduce market uncertainty.

But CalPERS is in a rare position where it can publicly take a pro-climate stance. So they’re shining a light on it— as LPs in other geographies have to keep their sustainable investing in the shadows

Featured image by Julia Midkiff/PitchBook News