CalSTRS Strategically Positions Itself for the Opportunities of the Energy Transition

CalSTRS understands that the changing energy landscape requires a special approach. They have a plan called Sustainable Investment and Stewardship Strategies (SISS) to invest in opportunities that are a mix of private equity and infrastructure.

The SISS private portfolio started in March 2021 and has committed $1.4 billion to investments. Its goal is to benefit from changes related to sustainability in the economy. They focus on three types of investments: climate-friendly infrastructure, startups working on eco-friendly solutions, and innovative climate projects.

Setting up this portfolio a few years ago was a smart move because it allowed them to seize opportunities they wouldn’t have had otherwise.

They plan to grow the SISS portfolio to about $3 billion in the next few years. They made this possible by shifting some money from global stocks to private lending, private equity, and assets that are affected by inflation.

The energy transition offers unique opportunities that don’t fit neatly into the usual investment categories or risk profiles. CalSTRS is building a team and a portfolio to take advantage of these opportunities as they arise.

They’ve seen a similar evolution in their real estate and infrastructure portfolios. They started by investing in funds, then joint ventures, and eventually owning companies directly. They plan to do something similar in the energy transition field.

In the SISS private portfolio, about half of the investments are in climate-friendly infrastructure, with a focus on clean energy. Another 30% is in innovative climate solutions, which might not fit traditional categories. The remaining 20% is in startups and technology solutions that aim to reduce emissions.

The SISS portfolio, managed by Kirsty Jenkinson, has performed well. It returned 9.3% in the year ending June 2023, while their benchmark only gained 0.8%. Over three years, it returned 11.3%.

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