Californian pension fund giant CalSTRS is trialling its climate solutions taxonomy as the fund’s opportunistic climate solutions portfolio heads towards its 1 percent allocation goal.
The portfolio sits under the $415 billion fund’s Sustainable Investment and Stewardship Strategies (SISS) allocation, investing in climate solutions across private equity, infrastructure and private credit.
The team has been allocated 1 percent of the CalSTRS portfolio to invest, and had made $5.6 billion in commitments with a portfolio net asset value of $2.2 billion by the end of 2025.
Investments include an early-stage co-investment in geothermal energy firm Fervo Energy, which raised $1.89 billion from its IPO in May in the largest cleantech IPO in history.
Nick Abel, CalSTRS
CalSTRS’ shares are still in the lock-up period, notes Nick Abel, investment director of SISS, but he says the investment was “a really exciting success story”.
In July, the SISS team announced a $2 billion partnership with Nuveen’s infrastructure private credit team.
Abel says it will “focus on innovative asset-backed or private credit opportunities that are at the nexus of speed to power, the AI theme, the onshoring infrastructure supply chain theme, and electrification trends generally” within North America.
As part of the partnership, CalSTRS will serve as an anchor investor for the sustainable infrastructure portfolio in Nuveen’s energy and power infrastructure strategy, and may anchor further complementary strategies, as well as receiving co-investment opportunities.
Abel tells Responsible Investor that the Nuveen partnership could be the first of many.
“When there are opportunities that we feel like we can take advantage of because of our in-house expertise, and there’s alignment with a partner tackling an opportunity that is strategic to our programme or the total fund, we’ll lean into opportunities like that,” he says.
The SISS team uses the phrase “more than money” internally, he says, asking the questions: “How do we position ourselves to be an active investor with the GPs or with the companies that we invest in, and finding creative ways to support them and to support the businesses where it makes sense within our fiduciary duty?”
This can include knowledge-sharing, working constructively on transaction co-bids, or sharing non-proprietary market observations with portfolio companies, Abel adds.
Similar to the public markets team’s approach with stewarding publicly listed companies, he says the SISS team tries to apply “that same framework of: ‘how can we be intentional about adding value to the companies that we invest in?’”.
Taxonomania
CalSTRS has also finished the initial development of its own climate solutions taxonomy and is carrying out a trial run on the opportunistic portfolio.
“We’ll be using this fiscal year to assess how decision-useful and helpful it is as we tag investments and identify investments on a go-forward basis within our portfolio,” Abel says.
“There are a lot of different ways folks can categorise climate solutions across the capital stack and across sectors. We’re making sure it’s broad enough and consistent enough and coherent enough for us to be able to use it in a meaningful way, because we don’t want to be spending time on a taxonomy if it’s not decision-useful for our team.”
Abel says the fund has “wonderful GPs” when it comes to getting the data it needs for its climate solutions investments. “They tend to be very constructive in helping us get the data that we need.”
In the wider market, Abel says, it is no secret that access to timely, comparable and consistent climate data is “still a work in progress”. While there are a lot of useful initiatives, including the ESG Data Convergence Initiative, he adds, data remains a challenge.
“This is why we’re trying to think creatively and leverage different types of partnerships to try and help us normalise data and digest data in a way that can be decision-useful as the broader quality of data in the market continues to progress.”
Deal flows
Given volatility in the global economy and domestic headwinds against sustainability and renewable energy, it might be reasonable to expect climate solutions opportunities to be drying up.
However, Abel says the SISS team has been “pretty surprised” that dealflow “hasn’t really slowed down”, apart from across certain types of businesses and “different subcategories and types of round”.
“In terms of being able to get quality dealflow to triage in our pipeline meetings and identify how to deploy to move towards our 1 percent net asset value target, we haven’t had issues from a quality-of-dealflow perspective,” he says.
The relative scarcity of “dedicated private market pools of climate capital” means that CalSTRS is not seeing more competition for deals either.
“We’ve been very fortunate in being able to partner with people to find creative ways where CalSTRS can be more than money, and partner with these businesses as a partner of choice.”