Why CalSTRS can't count

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May 07, 2024 View in browser   By Jordan Wolman THE BIG IDEA CalSTRS' emissions data problems could inject new life into the Scope 3 debate. | Christopher Furlong/Getty Images) PENSION PROBLEMS — It seems reasonable to think that if corporations and large investors are going to play a role in addressing global warming by reducing their carbon footprints, they should at least be able to gauge said footprint. But if the example of the nation's second largest public pension fund is any guide, we've got a big problem on that front. The California State Teachers’ Retirement System said last week that it will need to delay its report on emissions data from last year until 2025 after discovering a colossal climate data error that also caused its reporting for 2021 and 2022 to be inaccurate. What happened? CalSTRS said it ran into issues with portfolio companies reporting their emissions at different times, which skewed efforts to calculate its total carbon footprint. While the pension fund values its stakes in companies at the end of each year, the variability in reporting times for emissions tangled its attempts to come up with accurate measurements. It’s a microcosm of the debate playing out globally over the effectiveness of corporate emissions reporting — and a political gift for climate disclosure opponents as the data kerfuffle hardens groups’ positions on the issue, we reported in last night’s California Climate newsletter. "We're trying to do the right thing," said Kirsty Jenkinson, director of sustainable investment and stewardship strategies for CalSTRS’ $336 billion portfolio. "And we don't feel like with all of the data provided that we have the right system to do this. So it is frustrating not to be able to do this as clearly as we hoped.” The ability for companies and investors to calculate their carbon footprint — including value chain and financed emissions known as Scope 3 — is at the heart of the climate disclosure fight. Climate disclosure advocates like Kirsten Spalding, vice president of the investor network at Ceres, say the CalSTRS ordeal only bolsters the case for more reporting, including regulations like the SEC’s new climate risk disclosure rule and the emissions reporting law California enacted last year. “What we’ve been pushing for all along is consistent data in a comparable form,” Jenkinson said. “We want a global framework.” At the same time, opponents like the California Chamber of Commerce are rolling out the I-told-you-sos. “CalChamber has been clear from day one that Scope 3 reporting is either unobtainable or unreliable, now we have a large state agency agreeing with that,” said Denise Davis, a spokesperson for the business group that has joined with others suing over the law. “Due to the persistent double counting of Scope 3 emissions, nearly all companies are going to incorrectly report their real emissions and that simply sets the business community in California up for failure.” To be clear, CalSTRS itself won’t be covered by either California’s law or the SEC climate rule. But the errors the fund uncovered have broad applicability, especially for financial institutions, whose emissions mainly fall under Scope 3, said William Paddock, co-founder of WAP Sustainability and a member of the Carbon Accounting Alliance, a global network of more than 350 carbon accounting companies. “I think anybody who is dependent on company data to calculate their footprint will face the same challenges,” said Brian Rice, a CalSTRS portfolio manager. “Until we get consistent, more timely, comparable disclosures, anybody who utilizes emissions data is going to have to sort of figure out how the data or the lack of timing in the data is impacting their systems and their measurements.” CalSTRS went so far as to say in the agenda for its meeting last week that value chain emissions data “would likely not be reliable or useful for decision making,” a statement that’s sure to add fuel to the anti-Scope 3 fire. “We ultimately think that it's going to be better to have this information, but we recognize that it's not easy, and we recognize there are challenges,” Jenkinson said. If nothing else, give CalSTRS credit for owning up to the transgression. “Others are using an estimate of an estimate of an estimate and publishing that,” said Christopher Ailman, chief investment officer at CalSTRS, at the board meeting. “We came to you and honestly said we don't think that's intellectually honest. We can't, and we shouldn't. We need better disclosure.” WASHINGTON WATCH COLD SHOULDER — President Joe Biden’s biggest legislative accomplishments are being shrugged off by voters, according to a new POLITICO-Morning Consult poll. In fact, out of Biden’s four biggest laws in 2021 and 2022, only the Inflation Reduction Act garnered a majority of poll respondents who said they’d heard at least “some” about it — though few said they’re seeing benefits from the clean energy and infrastructure projects associated with it. Democrats were much more likely than Republicans or independents to say the IRA has had a positive impact, Steven Shepard reports. To add insult to injury, poll respondents credited former President Donald Trump almost as much as Biden for taking action on infrastructure — even though it was Biden who signed the bipartisan law, succeeding in an area where Trump famously failed. AROUND THE NATION CORNY CHAOS — The Biden administration is trying to boost cleaner corn-based jet fuel. Now farmers need to decide if it makes business sense for them to play ball. New government models show farmers would need to adopt a number of climate-friendly practices to qualify for an IRA tax credit, and even if they did so, the credit for sustainable aviation fuel is set to expire in three years. The administration is partly counting on economic pressure from the rise of EVs to persuade skeptical farmers. While most Americans currently fill their cars up with gas consisting of a 10 percent corn-based ethanol blend, accounting for about 40 percent of annual corn sales, electric cars are bound to eat into that margin. Still, it will be a long road to develop the technology and infrastructure to make the fuel both sustainable and affordable, Garrett Downs reports for POLITICO’s E&E News. “The emergence of SAF could fundamentally change biofuels and the ag industry and really propel our industries into a new chapter of prosperity,” said Geoff Cooper, president and CEO of the Renewable Fuels Association. “However, I think we’re concerned about the time it’s going to take and the pieces that need to fall into place to really stand a brand new industry up.” Then there’s this: Climate groups are expressing concern about the carbon footprint from refining and processing corn. The World Resources Institute lashed out at the administration’s tax credit requirements, saying it is “bowing to pressure from the ethanol industry.” YOU TELL US GAME ON — Welcome to the Long Game, where we tell you about the latest on efforts to shape our future. Join us every Tuesday as we keep you in the loop on the world of sustainability. Team Sustainability is editor Greg Mott and reporters Jordan Wolman and Allison Prang. Reach us all at gmott@politico.com, jwolman@politico.com and aprang@politico.com. Sign up for the Long Game. It's free! WHAT WE'RE CLICKING — An upcoming election for the top job at a U.N.-linked organization that regulates deep-sea mining is shaping up as a fight between business and ecological interests, Bloomberg reports. — The Financial Times takes a deep dive into how governments around the world are trying to foot the $9 trillion bill for financing the green transition. — The New York Times examines how giant batteries are transforming the way the U.S. uses electricity.   Follow us on Twitter Debra Kahn @debra_kahn Greg Mott @gwmott Jordan Wolman @jordanwolman Allison Prang @AllisonPrang   Follow us

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