Investment Committee | CalSTRS Teachers' Retirement Board Meeting | July 15, 2020

Good morning everybody it’s great to see all of your faces happy to see that everybody seems to be doing well and staying staying safe and healthy we’re going to go ahead and get started but just before we start there are also a lot of people from our team who are not on video right now but I just really want to want to do a shout out and thanks to all of the our great team on the investment staff and the executive staff for having the technology in place to allow CalSTRS to keep running the way that it has to our investment team for um you know being so experienced and calm and having such a steady hand in how they’re guiding us through some of the uncertainty that we’re all we’re all experiencing and facing so so thank you very much um so Roslyn I’ll turn it over to you to do the roll Okay so Miss Bradford, Miss Hendricks, here here good morning Yamamoto here Miss Miller for the Director of Finance, here State Treasurer miss Ma, here here, Mr. Yamanaka for the Superintendent of Public Instruction, here and Controller Yee here okay oh so madam chairperson you have a quorum Mr. Keiley just wanted to be Mr. Keiley just joined the meeting okay great so I will mark Mr. Keiley thank you thank you Roslyn great thanks Roslyn and thank you Harry good to hear your voice um the first item that we have is um is approval our committee agenda and I would just ask that we um we approve it with some flexibility because we are moving one of the agenda items number 12 to a little bit later in the day to just um accommodate our speaker and work with our schedule um so if i could have a motion and a second for the agenda sharon made the motion and gail i think seconded great thank you um so i think that’s what um all those in favor say hi bye bye okay thank you very much Okay what we’re doing now is we’re going to agenda item number two which is the opportunity for statements from the public um this item I just wanted to make clear that this area for public comment is scheduled for six minutes, so we will be going until about 9 13 we’re going to split the time between callers comments made at this time may pertain to topics that aren’t covered by a specific agenda item and i just also want to let the public know that in addition to taking public comment during our meetings we also take public comment in writing since our past meeting leading into this one we have received public comment from a number of different organizations there have been some form letters that we’ve received from different organizations and campaigns some from Fossil Free California calling for divestment from fossil fuels some other form letters coming from In Defense of Animals calling for divestment from Sea World and some letters from Code Pink calling for divestment from General Dynamics we’ve also heard about other topics of interest from members of the public including an interest in china we receive occasional inquiries about our investments in china and chinese-owned companies um and then continue to also you know have inquiries and interests by southwest california um some other foreign letters coming from indefensive animals calling for divestment from sea world and um some letters from code pink collin okay um we’re all I think still working with the technology here so apologize for that um that brief interruption um but i think what i’m doing now is turning it over to Danielle and Ger who are going to help us manage the queue of speakers who are offering public comments um we have 12 callers in the queue right now Our first caller is Jesus, Jesus go ahead is this could you hear me yes go ahead could you hear me okay sorry um hello there and good morning my name is jesus i’m glad to be with you all before the pandemic i would have had to travel a long way to sacramento and

that could have been difficult for many reasons but today we have the privilege of meeting at a distance and i’ll share some information about my beautiful part of the state it was originally seized from tango peoples and given as a land grant to a man named don lugo by the spanish empire and it was the home of glenn t seaborg who discovered the element seaborgium clearly a product of our schools and ingenuity in fact we were the site of a general motors plant which produced cars of the future like cadillac right actually we hosted many factories and industries in our prime and it was sure that the investing of it would give us the future as inhabitants and when those industries left or exploited us we realized that it was all a lie the General Motors plant closed and was replaced by high school a few years later and that’s where my school is now today less than 3.5 percent of our population is white and i myself am an indigenous person from mexico we host more than 20 public schools ranging from pre-k to high school and more than 30 000 kids to fill them we also have an oil well and a gas well i myself went to school next to an industrial park and eight percent of the children here have asthma including myself every five out of thousand infants die in their first year of birth and my Christmas baby was one of them when i found out that CalSTRS existed and that they were there to ensure the future of our teachers post-retirement I was thrilled my teachers are very near and dear to my heart and they’ve taught me many life lessons I stand with my teachers full stop I stood with them two Januaries ago when they went on strike i stayed with my teachers during distance learning in the spring and i know they stand with me today when i say that it’s absolutely disturbing to know that their pension will be weaponized against the very communities they serve you quote when I first opened your page how will you spend your future but the real question is how could you spend your students millions of futures how could you condemn thousands if not millions of students across the state to a miserable polluted and charged future what do you gain from investing in the violence that’s perpetuated against black and brown students across the state you say that you stand against racial violence but then go ahead and keep sponsoring it a teacher’s pension should not come from blood money do you really think that you’ll most engage the industry by keeping invested do you really think that your consultants come from the same things that i do are they poor and black or indigenous and if not are you willing to check your assumptions about divestment not being the answer we need right now that’s why we need to keep telling you divest divest divest because if not you are perpetuating the same violence the police officers when they shoot our backs bring you on our next listen to us now we ask you will you spend our futures or will you divest thank you thank you for your call um our next caller is anastasia anastasia go ahead hello everyone am i can i go ahead anastasia we can hear you my name is anastasia okay thank you my name is anastasia and i just graduated from santa monica high school where healy where harry keeley is supposedly employed i called in today to question the efficacy of your engagement strategy with fossil fuel corporations this board has been referring to this strategy for so many years and yet not once have any successful results of the strategy been made public or shared with the calstrs teachers what effects have you really produced with this engagement you have had people of all ages voicing opposition to this strategy at nearly every meeting yet if you are as confident as you say you are about how well the strategy is working why not just reveal the results and let us compare them to the positive results that would be achieved the six billion dollars was invested directly into sustainable funds this lack of transparency with the public and the teachers whose paychecks you are investing is the problem the one million teachers are simply supposed to trust that their money isn’t going into perpetuating the fossil fuel economy poisoning our resources and disproportionately injuring communities of color we i urge you to divest the six billion from fossil fuels thank you okay our next caller is amion go ahead hello go ahead we can hear you hello okay hello my name is amin i’m with the earth guardians bay area crew of course you know that we the youth and teachers are very frustrated disappointed and tired that we have to keep pointing out that engagement is not the strategy being called out for by indigenous communities climate scientists and families who are who live next to oil oil attractions are you already aware that in california 92 percent of the people living to fossil fuel sites are black indigenous or people of color you say that over and over that you care

about climate change will you then dedicate at least at least a section of your next agenda to hear a presentation about frontline solutions answer questions from teachers and students we know who live in areas very different than most of you and your staff probably live will you make space to check your assumptions about engagement strategy with people who aren’t already who you aren’t already in conversation with i was with the meeting with you mr kelly and miss hendricks along with the ceo and 20 other students this year we chatted a little afterwards and you both told me that you appreciate my public speaking skills i think you left with a good feeling about our connection and might have thought that i did too as a young black man it was really uncomfortable when in the middle of the meeting you asked where i am from and did not ask anyone else when i said somalia you should that part of clusters cannot divest why why better part of calculus cannot divest is because poor people like those in african countries cannot afford renewable energy this felt really painful and frustrating as a person from an african country it hurt me to see how hair you harry as a westerner presented yourself as a person who knows what’s best for the continent and that you are actually helping us by investing in fossil fuels in east africa we use hydropower to get electricity and it’s been working for years most people in my country went from having no telephones directly to cell phones they skipped landline we don’t want you to continue and get your engagement and money going into fossil fuels we need you to stand for bringing subsidies and investments that set us up to scale alternatives this will have great effect on the lives of millions lots of organizations right now are committing to look at how white supremacy culture is alive within them no matter how progressive they are compared to others a few weeks ago I went to get a snack at a shop and the women screamed the n word at me it’s going to take a long time to get rid of the world of racism in every individual however in the positions that you have right now you have the power to make a massive contribution to ending systematic environmental racism with our teachers money are you open to investigating how much of your commitment to engagement strategy an absence of authentic communication with front-light communities might be contaminated by white supremacy culture thank you for your comment our next caller is miriam miriam go ahead hello my name is miriam and i’m a young person who’s not so naive to think my words today won’t fall on deaf ears in fact given that during covid this meeting is held virtually i have no guarantee you even muted me to save yourself the discomforting cries of young people begging for a future so instead of reminding you that i struggle to breathe because of my asthma caused by pollution exposure from fossil fuels i’m going to speak your language your own brian rice admitted that climate change is your greatest threat but you did nothing you knew but did not divest from energy transfer even when its shares dropped by 18 on july 8th before the dapple pipeline was shut down for a second time did you and your financial analysts not see the warning signs still you didn’t divest now the construction of the atlantic coast pipeline has been halted chesapeake energy declared bankruptcy and exxon’s shares are down by 41 percent from last year why are you squandering the pensions of teachers because change is difficult because you love the fossil fuels which are threatening my future your investment decisions are bleeding money because you won’t divest you had one job you’re failing because you want to sit on your asses instead of making the decision to make more money while protecting me your children and everyone in my generation thank you for your call our next caller is diana diana go ahead hello my name is diana curiel and i’m a calstrs member calstrs has a fiduciary responsibility to assess its investment risks recent activity in climate liability lawsuits is relevant to the esg risks associated with fossil fuels according to a recent article in climate docket.com and a stanford law school webinar climate liability suits filed by nearly two dozen municipalities are now proceeding in state federal and appellate courts across the country plaintiffs are using these lawsuits to shift the burden of climate adaptation costs from taxpayers to polluters fossil fuel executives will be faced with evidence that for decades they knowingly misled the public about the climate threat posed by their products this will change public opinion regarding the wisdom of investing in these companies and who is liable for damages arising from climate change the board has an obligation to ensure

that the corporations in which calstrs invest strive for long-term sustainability in their operations calstrs the time to divest from fossil fuels is now thank you for your comments our next caller is john john go ahead john is it joan jones go ahead this is joe norman yes hi this is joan loman good morning i’m from oakland i’m 76 i’m the spouse of a calstrs retiree who worked for 30 years as a teacher and administrator at city college of san francisco my life benefits from my wife’s calstrs pension my parents were lifetime teachers and CalSTRS pensioners my brother is a lifetime California public school teacher also a CalSTRS beneficiary CalSTRS has 30 million dollars invested in energy transfer bonds as you know on July 6 the District of Columbia court ruled that the Dakota access pipeline designed by energy transfer must be shut down pending a strict environmental review the value of energy transfer stocks have plummeted with the court decision and where was CalSTRS policy of engagement when the pipeline was allowed to go forward with no environmental review where was CalSTRS engagement when thousands of concerned citizens gathered at the Standing Rock Sioux reservation for months to protest the pipeline that threatened the community’s water and sacred burial sites where was calstrs policy of engagement when over 300 police officers using tasers pepper spray sound cannons and clubs descended on the treaty camp at standing rock and violently broke up a peaceful protest in 2016 why did calstrs not terminate its relationship to energy transfer after these egregious actions how can calstrs claim its policy of engagement is intact when every part of the esg tool was blatantly ignored in the case of the energy transfer e environmental there was no significant environmental review s social energy transfer ignored an international outcry over the threat to the water source and burial grounds of the standing rock sioux key governance what was the skew in energy transfers governance that would move forward with such a monumental project with no significant environmental report energy transfer is just one example of the questionable ethics and impacts of the fossil fuel industry i and my partner do not want our pension um that sustains our lives to be invested in life-threatening projects as a member of fossil free california and as a beneficiary of calstrs pension i urge you 30 seconds divestment on your september agenda and thank you for your time thank you for your call our next caller is lynn lynn go ahead thank you i’m lynne mittler a calstrs member i’m getting really nervous about the increasingly risky fossil fuel investments in my pension plan according to a July 2nd 2020 article published in inside climate news shell said it would slash the value of its oil and gas assets by 22 billion two weeks earlier BP said it would reduce the value of its assets by 17 billion both companies said the accounting moves were in response not only to coronavirus driven recession but also global efforts to tackle climate change andrew logan senior director of oil and gas at series admitted in a huge turnaround quote real assets with real dollar figures associated with them are likely to be stranded or left undeveloped in a decarbonizing world series a sustainable business advocacy group you know represents major investors like you siri says quote that the risk is real and it’s here in the present is a really big deal yet U.S. oil companies still insist there’s no problem here exxon says their oil and gas reserves face little risk of being stranded is counselors willing to take them at their word and ignore ignore the evidence otherwise why i think petroleum diamond offshore and chesapeake energy have already declared bankruptcies with shutdowns from code 719

and the imminent closure of the Dakota access pipeline the shale companies may face permanent closures too exxon had to write down 2.9 billion this may due to lower oil prices some analysts say gas and oil companies are approaching a future of dwindling demand and stranded assets why are you risking 6 billion to prop up a dying industry thank you thank you for your comment our next caller is dave dave go ahead good morning my name is dave keller i’m a teacher at piedmont high school in piedmont california um recently my teachers union the association of piedmont teachers passed a resolution supporting the STRS divestment from fossil fuel producing companies the teachers want divestment because fossil fuel companies are advancing climate change fat much faster than scientists predicted we have reached 417 parts per million co2 already and are on track to reach 440 parts per million by 2030 that means in just nine years we’ll be over the paris accord limit this is already having a devastating impact on our climate but you know that and so i’m wondering what is it that spurs is doing to address this situation according to investment belief number nine investment risks associated with climate change materially impact the value of calstrs investment portfolio is CalSTRS taking action please divest now thank you for your time thank you for your comment our next caller is Jolene, Jolene go ahead Thank you, my name is Jolene Seibert I am speaking simply as a retired third grade teacher from Readley, California I have been watching the global warming issue since i heard about a scientist measuring carbon dioxide levels on a mountain in Hawaii I think his name is Hansen I understand the atmosphere more co2 traps heat and warms us which seems like a bad idea burning fossil fuels gives off co2 fossil fuels are killing the planet fossil fuels are killing people therefore fossil fuels are a bad investment divest calstrs from fossil fuels teachers should not be invested in a product that kills people and the planet thank you thank you for your comment our next caller is dorothy dorothy go ahead dorothy go ahead hello okay good okay first yes okay my name is dorothy schumacher jennings i’m a retired teacher um you know it’s really important i really appreciate having a pension it allows me to feel like i’m you know have a certain sense of stability in this unprecedentedly difficult time um i you know i mean it’s it’s it’s been incredible and i appreciate your attempts your your stewardship of of the funds basically but um it’s so important it’s incredibly important that you that calstrs follow the lead of the uc system in divestment from fossil fuels it can be done in an orderly fashion but it must begin immediately not only is it morally unconscionable to keep investing in elements that are undisputably damaging our planet perpetuating environmental racism and destroying the futures of our young people but this time of coronavirus provides the perfect opportunity to do so these investments are no longer fiscally sound uh the world’s taken a long pause and many people have realized that perpetuating reliance on fossil fuels is quickly becoming archaic CalSTRS must invest in in the future in renewable energy to give our students the certitude that we have their best interests at heart and also to keep um teachers of retired teachers and teachers solvent um begin divesting now our counselors will be left shamefully behind thank you so much bye thank you for your comment our next caller is park park go ahead hi thank you so much uh my name is park guthrie i’m a sixth grade teacher

and longtime calstrs member i live in sonoma county thank you for your service i do not envy you the weight you must all feel stewarding the retirement funds of California teachers uh I believe your fiduciary duty requires you to digest from from fossil fuels it’s becoming more and more clear that engagement and active stewardship are not sufficient to drive paradigm shifts that support healthy long-term investment and growth it’s becoming uh abundantly clear that the fossil fuel industry both opposes important regulations to speed the transition to low-carbon future uh and one example of that is is carbon pricing um you know even sort of the poster child of fossil fuel companies that’s quote unquote supports carbon pricing bp invested 13 million dollars in defeating a carbon pricing measure and i looked at the top 20 recipients of oil and gas donations in congress and none of them support a bipartisan carbon pricing bill on the floor right now uh and all of them voted for an anti-carbon pricing bill so the fossil fuel industry uh does not support the measures that calstrs itself says are necessary and it’s clear they also support uh measures that um that support systemic racism uh so in the words of uh mr aylman uh in his march 5th letter he said entrenched interest remains strong and resistance to change is fierce uh meaningful decision useful esg disclosures and analysis remains the exception rather than the rule in many regions regulations that reflect a more long-term investment paradigm have been slow to evolve paradigms do not evolve they shift rapidly and precipitously we’ve all just witnessed a paradigm shift happening in our country about the roots of white supremacy and the prevalence of white supremacy the fossil fuel industry is exposed to liability based on its historic and ongoing support of policies which maintain environmental racism so um so i believe your your fiduciary duty requires you to examine divestment closely and follow the lead of UC Berkeley and divest from fossil fuels thank you very much thank you for your comment our last caller is linda linda go ahead okay thank you very much my name is linda bassett i was a teacher for 25 years and just retired and enjoying my retirement at this moment thank you very much i was a teacher in wilmington california where there are five refineries within about a 10 mile radius and i’ve been fighting for our environment and for our children for at least 10 years now and i’m appalled at the effects that it’s happening having on our children in these front-line communities first of all second of all um hang on second of all I want to read to you uh something that was on CNBC on um January 31st 2020 at 1007 a.m eastern time Jim Cramer the host of CBNC’s mad money co-founder of the street and former stockholder and hedge fund manager declared fossil fuels dead after oil giants Exxon Mobil and chevron reported q4 earnings this morning when asked about Exxons and Chevron stocks which are dragging down the dow today on squawk box kramer gave a damning prognosis to a surprise rebecca quick and he said I’m done with fossil fuels they’re done they’re just done we’re starting to see divestment all over the world we’re starting to see companies just regard them as i mean big pension funds saying listen we’re not going to own them anymore it doesn’t matter how good they are the world’s changed there’s new managers they don’t want to hear whether these are good or bad and he goes on and on the issue is the sustainability he said this is the other side of Tesla these stocks don’t want to be owned by younger people i’m asking the board what or how long are you going to wait before you digest

the other day at the beginning of march in the beginning of this pandemic the price of a barrel of oil was negative dollars they were paid the oil companies were paying people to buy their oil did you panic then what was going through your mind what are you going to do you know the writings on the wall i ask you how you will feel when this whole market drops and we are left six billion dollars invested in this please act now please divest now lead save the planet and save our pension 30 seconds and feel good thank you that’s all i have to say and thank you very much thank you for your comment this concludes the item to public comments thank you very much danielle thank you very much for those of you who called into our meeting today as well as those who submitted written comments i just want to make sure that everybody knows that those all of those comments whether in writing or verbally are are provided to all of the members of the investment committee as well as our leadership and we appreciate you yeah greatly appreciate your time and your engagement um so i’d like now to move on um to the next parts of the agenda we have agenda items three through seven which are consent action items um i just wanted to note that for agenda items three and four which are approval of our meeting minutes from march and may um karen helped us identify a couple of just of typos in in those minutes and so those typos will be will be fixed as part of the the adoption of the minutes um is there any are there any items that anybody needs to pull from the consent agenda then I think I would I’d taken um a motion to um to approve the consent agenda so moved second okay thank you, I think that was um Bill with the motion and Harry with a second all those in favor say aye okay any opposed or extensions okay so we’ve we’ve approved items three four five six and seven um so now moving on to we have two agenda items agenda items eight and nine which are consent um agenda items information only does anybody have any questions or items they’d like to raise with these two agenda items okay thank you then we’ll move on to agenda item number 10 um which is a review of our fiscal year 2020-21 business plans yes I’m so sorry I forgot on the um we’re fine the private equity consultant contract extension is totally fine with us we did sort of you know I don’t know that because we’re kind of in this virtual meetings for a long time now i just want to be really cognizant that we don’t substitute virtual meetings for due diligence in any way so i don’t want to think that i just want to make sure that we are really cognizant of contract extensions in the future so i would just like to make sure that we’re not necessarily going to continue on this path as a reason and that will sort of if if in fact when our private equity contract comes up again that we with that we do the due diligence i understand sort of we’re still getting used to this as we all are but i do think it’s a new normal and i just want to be cognizant that we never sort of see that kind of verbiage again around around any type of contract extension and and we’re mindful that we continue our same processes as we go on i’m sorry i meant to say that before the item now again we’re totally supportive of it thank you Gayle no problem and um and I really appreciate your comments I think what I’d add is that um uh in the the brief conversation that um Harry and I had with um with Chris about taking this approach um that was um you know before I think um our board chair and vice chair Harry and Sharon made the decision that given what’s happening in the environment we would have to hold our meetings virtually through the end of the year so i think now that we know that that’s sort of what we would anticipate for the foreseeable future i think we’ll definitely take that into account in terms of how we handle this particular contract as well as other contracts um that you know might be coming up with the investment committee but i i totally hear you we can’t um we’ve got to figure out how to manage some of these things in a new environment so thank you gail okay okay um then i think going back to

item number 10 it’s our fiscal year 20 20 21 business plans just for everybody’s reminder we do have this items scheduled for 20 minutes so we’ll go until about 9 35 so Chris I’ll turn it over to you thank you Troy uh good morning everybody the business plans are really actually a very critical element uh they’re fairly unique to CalSTRS or one of the few pension plans that takes the time to stop and write business plans but think of the fact that you’ve already got what over 60 percent participants on this call alone uh you’ve got a staff of over 150 investment officers and then a cadre of over 200 money managers keeping everybody on the same step and heading the same direction is absolutely essential and i and i really am sincere when i said i think it’s a secret the secret sauce to our success um is that we think like a money manager compared to many of our peers um if you have any questions about any of the asset class business plans the staff is is on the sidebar ready to jump in and answer questions about those i’m not going to get into the extreme details on the 10-year business plan we’ve used this tool as you can see for over 20 years our there are two drivers to the investment portfolio and to our cost structure one is assets under management aum so that’s why we take the time to forecast the range we think that may come then the other is the complexity of the portfolio which is a lot harder to measure but what we can do is we can look at the canadians we can look at some of the sovereign wealth funds and funds that get larger especially as they approach 300 400 billion dollars get immensely more complex i often tell the staff it sadly but it looks like a broccoli or cauliflower it starts basic but then blossoms so a key for us is obviously managing costs uh you’ve seen the news reports other plans are doing other things to try and keep earning seven percent um i actually think institutional investor did a good job of writing up an analysis that that our master plan as they called it is to reduce costs as you have said and we have said many times if we can take the same investments and reduce the cost by 20 or 50 basis points that’s two tenths to five tenths of a percent of added return in our pocket without taking more risk so i would turn your attention to inv 98 it’s it’s a six page six page of the investment business plan on my tablet it doesn’t have the page number um so it’s the graph right after the the busy ten year financial plan and these two charts are intended to be uh uh the same legend i apologize that i used slightly different words sorry to jump in sorry to jump in chris the inv page number again i’m sorry madam chair crystal page number again 98. thank you so page six of the financial plan there are three drivers of costs for us the first is the blue area which we call the support budget now that’s actually the the one budget that that you see and goes to the department of finance so all eyes are actually on that blue line even though it’s very very small that’s the cost of the investment staff all of our tools our services travel issues like that the green box which is more expensive but you do see that that comes out in the financial report each year that’s our continuously appropriated so finance in the legislature don’t really monitor it very closely because it’s just continuously appropriated to whatever it is those are our service contracts to most of our global equity fixed income our traditional asset managers where we have a traditional state contract even some of our real estate managers that’s a much larger figure obviously as you can see multiples of the blue line but that is captured in the in the financial statements the biggest source of cost which you had highlighted a couple of years ago shout out to paul rosenstiel who really made it a big issue was the carried interest and the performance fees that we pay now those are netted out of the returns we get similar to mutual funds you might be in where the cost of that mutual fund is netted so it’s not expressed as a fee it’s not broken out or paid out but now that we’re using the cost report we’re capturing that on a regular basis so these charts are really from the top down at the big picture using that cost report of what it costs

to run each asset class now we only have four years of the cost report but we think that that at least i’m using that as a guide what i’d like to do in the future is actually build these charts in the bottom up at the asset class level the challenge is you’re trying to assume what kind of performance fees and and carried interest we’re going to pay in the in the future but the bottom line is the chart at the top is business as usual if we only have about five to six percent of the private equity portfolio and co-investments if we keep real estate where it is where we only have about three or four real estate operating companies and the rest is out in manager contracts and infrastructure where we’re mostly paying fees to managers to run those assets you can see our costs just continue to rise on a steady track going over and approaching two billion dollars a year out there in 10 years from now so to borrow a phrase from the pandemic and sorry to use that as an analogy but it’s just so apropos our goal is to bend the curve is to take that cost curve and and arc it and and break it down now you can see in the lower box with the collaborative model the blue line actually grows a little bit more because as we have said you’ve got to spend money and and to your credit you’re spending it now you had approved a five-year business plan which we used up within three years we’re going to be coming back to finance and to you this fall with a new five-year business plan that will assume that we’re implementing the collaborative model and it’s incumbent on the staff to show you that cost savings and to show you that cost benefit but the blue line actually does grow a little bit faster the green line we think we can get economies of scale and we can break that down a little bit by moving a few more assets internal in the public side but the real cost savings and it’s almost an eight to one to ten to one cost ratio is in the pink area that’s where we think by owning asset managers as we do in real estate uh doing a lot more in co-investments and in better fee structures in private equity and then being more creative and moving away from separate accounts to owning asset managers in infrastructure that’s where through the collaborative model we think we can really bend the cost curve and the power of that is that the cost curve is is two percent and 20 basis points or 20 of the profits if you can cut that back as we have been you know our average now is about one and three quarters and about 18 percent of the profits but if we can get that even farther down and as i’ve mentioned before in real estate mike has given you live examples of companies where we own the company they then get hired by other public pension plans we capture that as revenue so we go from a fee to a flat to actually a revenue standpoint and that’s where out there in year five six seven eight that cost curve really starts to break because we start to see revenue now it’s incumbent on us to capture those net numbers they’re hard to distill out you don’t know them until after the fact but we think that that is a really key component in our ability to earn seven percent it all comes back to our ability to earn seven percent so i just really wanted to highlight that um it’s the oddity of the way we’re structured that the smallest cost figure is the one that everybody has the most visibility on and finance has oversight of um the green line is there by law and just as part of the budget but it’s that other cost figure that we are now capturing that we are really trying to to bend and lower there any questions or comments about that um chris i’m sorry we do have a couple questions um let’s see so i’ll go to bill uh bill pernott thank you very much joy uh this was a great presentation my compliments to the entire team uh at the investment uh area and uh what i’d like to ask you chris is i recall reading a while back that there was a study done for 2018 that showed the amount of funds that uh uh the amount of costs that were incurred in internal management versus external management is there anything being done to show that for 2019 um we will do that uh that will be part of the november cost report that deborah smith’s team led by shafat and april will deliver to you and it will break out internal external the ratio bill is roughly ten to one uh that it cost us about one tenth the cost

to hire our own staff versus hiring wall street uh and what we’re seeing is that might be a bit aggressive it might be closer to eight to one but that’s still a huge multiplier well i i just want to make one observation that uh you know given the challenges that uh we’re gonna face uh at at the state level uh and at the local government level in terms of funding uh the the uh pension fund that it really highlights how important this issue is to the success of calstrs if if this is where the tire really is going to meet the road uh you know if we can generate uh more than 60 to 65 percent uh we’re going to have to generate more than that to pay these benefits over time because local governments are going to be really challenged at the local school district level at the employer level and the state’s going to be challenged and so i to me this is one of the most critical issues that we have facing us and to whatever extent that we can as a board push this issue and do whatever we can to assist the investment division in in uh moving the collaborative model in a much more uh speedy way you know i think we really have to do that because the world has changed you know this pandemic has changed the way everybody does business and and as we move forward we’re going to see that we’re going to have to watch our costs both at the investment level and and at the operational level as well so anyway i just want to make that comment to me this is one of the most important issues we face and i really thank you and your team for having done a terrific job of moving uh the collaborative model along with the pillars project and and all the other things that you’ve been doing thank you great thank you thanks very much bill um and i um heartily concur with the comments that you made um where two more speakers we’ll go to harry and then to gail harry thanks madam chair i i don’t have a question chris i just wanted to be on the record to let you and the staff know that you have my full support around your two slides there the one is the bending the cost curve and i know those are estimates it’s tough to predict what’s going to happen tomorrow let alone literally it’s tough to predict what’s going to happen tomorrow let alone what’s going to happen in years out but these forecasts and projections are in the hundreds of millions of dollars in cost savings to the system that will come back and will be invested back into the fund that will be that will grow on a compounded basis to pay benefits whatever we can do to do that you have my full support and i think it’s critically important that we as a board understand uh what we have control over and this could very well be one of them and i love the moving from a fee to flat to revenue model that’s transformative if we can execute that that is truly transformative in uh i believe the public pension world in the united states so um as a board member i need to understand and how we can support these efforts it’s going to be multi-year and obviously it’s going to take bodies and it’s going to take people and there’s a cost associated with that and there’s other organizations and institutions that we have to look to and speak to and um convince that we as a investment branch are going to need to grow in order to achieve these cost savings so I think there’s a compelling argument to move this forward and I just wanted to let you and the team know you have my full support great thank you very much Harry we’ll go to you thank you madam chair and thank you Chris for the presentation I do think it’s great and obviously we support it as well and always pass your kudos on to Paul, just a few more specific questions around implementation on inv 99, I think the the detail plan is is really great i i i wonder if it’s a little bit aspirational so i i’m just wondering sort of the impediments to growing the size and the skill set and what what the dual path of management and training will look like in order to reach the goals or what you see as the biggest impediments or risks to implementing it thanks gail it is aspirational the absolute biggest impediment is the people i’ve often told you of the 250 billion dollars we have to me the most important asset is the 170 investment officers that used to walk in and out of that building but

now we’re all at home and the key is going to be to hiring that talent and building it and i am afraid and sad to say but that talent does not reside in sacramento we’re trying to pull people in but even then you do get people reluctant to come to sacramento we’re going to have to use this new as bill said this new world of remote access to allow people to be in the bay area in la and likely work in different areas um and it’s the key is talent you’ve got two forces challenging us one is succession plan because you have a lot of your experienced people as we’ve outlined due to retire so passing that knowledge on and then building that new team and and the other challenge is really culture as you know i think we have a very unique and special culture in the investment branch but frankly i don’t know how to do culture when everybody is remote and actually being in their own homes so that’s something we’re going to have to learn as we grow into this world just like every other company but i think that’s the the area you can constantly gorillas is how are we doing on that recruitment are we bringing in the talent uh i’ve really tasked scott to work with margo on certainly building out that co-investment team within the private equity unit that is critical for us uh and then obviously mike knows that succession planning within real estate those are the two areas that are important to the collaborative model and the two areas where we have succession planning and talent as the key so we will be communicating with the compensation committee pretty regularly to give you real online on-time facts about how our recruitments are going because that does lean over to that uncomfortable area of total compensation and are we able to compete in that environment and find those people and it gets back to business structure bill’s comment you know we have the four pillar project to try and help us operate a bit more efficiently that is what we said is critical to be able to implement this model but we may find as we go farther that it’s even more challenging in our governmental model and we know that from the canadians as they’ve moved forward we see the advantages of their model but then also the disadvantages and those are things i think out in year five we’re gonna have to have frank discussions about can we do this well within the government structure or do we need to look at other structures uh for some of our companies but we’re already seeing the benefits of basically having real estate operating companies that are almost an extension of our own team we can use them for research we can use them for information they’re out operating as an independent company which we have minority or or sometimes majority control of and can work effectively with them i appreciate that i have two follow-ups madam sheriff that’s okay sorry go ahead gail thank you um one we talk a lot about real estate and i have a specific question on real estate and private equity and the collaborative model in terms of um global equity inv 102 you know i think that’s the piece where we really should start in addition to the the partnerships that we see in real estate and hopefully we’ll begin to see in in private equity what what’s kind of an example of how how global equity is actually expanding internal asset management or any of these it’s hard to see just from the business plan how they’re actually being implemented and and maybe just some specific examples of of how they’ve changed and global equity seems to be since we’re going so much in-house like how june’s team has been able to effectively execute that i will let june speak for herself good morning board members we set off on a multi-year project actually to build out our internal management capabilities when i first got here it was north america u.s and canada and so the first chunk of internal management was non-us developed markets efa strategies and so we have a considerable sized internal portfolio which provides us with fee savings and the next phase of the internal management effort is emerging markets which is the most expensive market segment for us right now in terms of the fees that we pay and so our estimate if we were to bring in a piece of that passively and be able to manage it internally in an index portfolio is very considerable it could be 30 to 40 basis points of fee savings and so you multiply that by the asset base and it’s in the millions of dollars over just the past two fiscal years we’ve also increased the number of u.s and non-us strategies approximately our estimate is close to 10 billion over

the past two fiscal years that we’ve brought in internally that were previously managed externally and every dollar broad internal is incremental fee savings so our current project for this fiscal year is emerging markets which will be potentially very beneficial yeah maybe i’ll add a few comments um because i’ve talked with june um about her strategy relative to the long term because we’re talking 10 years now that their team over this period of time most likely we’ll also have the opportunity and develop the skill sets to manage another emerging part of our portfolio which would be risk factors or smart beta and i know that june has has that capability but we’ll also be developing that with her team and so that’s another area over the long term where i think we can make a lot of ground so gail i would add basically we’re running all the passive assets we can and now you’re going to start seeing us which we’ve been doing is branch off into enhanced index type products we already have two cases where an index is created we buy the license and they send us the feed we execute the trades and manage it the portfolio instead of relying on an outside manager so I think you can see us arc on that continuum to eventually maybe even someday doing active management internal that would be a huge reach for where calstrs had been way back 20 years ago but it’s definitely you can see it as a potential skill set in our abilities one last thing i’ll add is we also funded a low-carbon index portfolio that’s related to the cis portfolio but we didn’t have to go outside to hire an investment manager we were able to start that strategy ourselves against the low-carbon index so it provides flexibility in other areas of the total fund where we may want to express a view we have those capabilities right thank you i really appreciate that everyone my final question is around real estate and the one of the risks you know in on inv 108 is a lack of increase in technological resources to enhance staff’s efficiency could you could you talk a little bit about that and what that is i will invite mike to come in since it’s on technology hopefully he is online and has the background michael and then michael while you’re talking could you talk about kind of the the partnerships with the reits that was a a risk you had highlighted in the past i just if you could give an update on that please sure um so with respect to technology i think the real estate industry it’s it’s not a secret is pretty uh is pretty far behind with Michael can I interrupt you real quick can you turn on your camera so the public can see you okay sorry there we go okay good morning um the uh the real estate industry is pretty far behind with respect to having uh good technologies to manage portfolios and to do attribution analysis of our portfolios but we are we don’t we’re delving into a couple that we’re uh going to take a look at this year’s on both portfolio management and attribution analysis uh we’re in negotiation with one group to uh to purchase their services we’ve also already hired someone for fee verification it was one of the things that came up in one of our audits that you’ll see tomorrow but we’ve hired a firm to uh use technology to do our fee verification processing data and contact management we’re working actually privately took the lead to bring in a in a group for uh for data and contact management so we’re we’re going down the path that that group should be hired in january this year so we’re applying a lot of different technologies and i think by this time next year at least three different companies will be working with in depth uh to manage our portfolio contacts and also help us with with uh analysis of our fees uh with respect to um uh working with reits um we um we we’re new in in making investments in the reit area we found that uh when we’ve joined ventured with reits in the past it was it was problematic for us to get alignment of interest because in most of our relationships we have majority control in our joint ventures with reits we’ve had a tough time having those control provisions where we could kind of direct the purchase and sale of assets so our focus right now in investing in the read area which is not significant this time i think we i believe we have about 300 million under management is more to look at the opportunity and reits

to when there’s a dislocation in the public markets for us to use uh our analysis of what’s happening in the private markets to see if there’s an opportunity to buy reits and it’s i believe that uh we’re we’re actually looking at it we actually commissioned a strategy with an independent fiduciary to try to look at options for us to invest in that area great thank you and madame terry this is really my final question for mike while i have you i was surprised in the business plan it didn’t sort of point out the inherent risks in post-pandemic you know with the work from home posture and and how difficult and kind of you know commercial real estate being so different especially given the some of the ongoing um successes you’ve had and how close you are to your asset allocation i just um wondering how you’re factoring that risk into your into the business plan i just didn’t see anything about that i i understand the staffing resources as the risk and technology as a risk but just how and maybe this is not a fair question to put on you because it’s the economy writ large but just how you see specifically the the work from home posture and real estate you know we’d like to see everyone get back out there as as soon as it’s safe because uh we want people to go visit our real estate i mean obviously we are we have a vested interest in people getting out and using offices going shopping uh there are some aspects of our portfolio that are that are doing actually better because of this the industrial portfolio is thriving uh as more and more shipping is being done directly to homes and so more and more need for industrial space but the uh it’s it’s clear already not it’s better already that retail is going to get hit the hardest um how hard it’s going to get hit really depends on how long this lasts and whether consumers change their shopping preferences of the way they buy i think office is next in line that there’s a huge question out there of when people are going to go back in and utilize offices and when they do how are they going to obviously we’re going through that thought process at calstrs ourselves with the use of our office space so those are the ones that we’re focusing on the most um residential quite frankly isn’t seeing much of a hit we did we did see a uh we did see some valuation changes in our portfolio but demand has stayed strong although uh the effects of the economy should uh should hurt demand for a higher end residential space going forward if we uh dip dip into a deeper recession so the only other aspect that we’re concerned about is the speed of transactions and how we go about making decisions on real estate assets when we’re used to going out and kicking the tires if you will or kicking the bricks as we say and seeing the assets directly so how decision making decisions are going to be made going forward is going to be a challenge but it’s a challenge for the whole industry so we don’t think we’re at a disadvantage at this point thank you thank you thank you gail okay we have um betty um the controller up next and then i don’t have any other board members in the queue um so i just wanted to remind everyone that um uh you know after betty this is an action item so we’ll need to vote on this um so Betty I’ll turn it over to you great thank you Joy can you hear me thank you joy very much and um i apologize I had my audio crash just a little while ago so appreciate it Gayle’s questions about real estate and whether the pandemic has actually had impact with respect to slowing down the uh the collaborative model implementation but maybe just too soon to tell i wanted to focus uh some attention just a little bit on of the sys portfolio because um there’s been a lot of attention paid and probably more so ongoing on the role of human capital management and obviously with so many displays from the economy uh from the um pandemic induced recession um i know that um you know part of the work plan for uh the the sus work plan was to really do some engagement on executive compensation but i guess i would say probably even more a broader focus on human capital management as we go forward with how many workers have been displaced from so many industries and looking at whether instead of just relying on our partnerships with respect to that particular area whether we could

take a little bit more of a leadership role just seems to me that this is going to drive a lot of just the timing of when the economy recovers the types of opportunities that are going to be available with respect to jobs going forward that could also inform our investment decisions so just really kind of a and i i just want to put that forth in terms of whether that could be elevated as an area of focus allows kirsty to come on and talk about that that’s part of the work plan that we adopted obviously climate change was the top issue uh yeah certainly written up so there’s not so Kirsty oh thank you very much Controller Yee, I would um I guess I would say that in the business plan for cis and we’ll talk about this in the next agenda item given that we have different distinct parts of our portfolio both the investment piece and the stewardship piece the business plan that you see doesn’t fully capture all of the priorities and the focus that we’re giving on our stewardship activities just for the nature of having to squish everything into two pages um i would absolutely you know um say that you know as we as we talked about in january and have been subsequently you know our core priorities around the transition to a low-carbon economy and broad effectiveness particularly oversight of human capital management and diversity which are obviously two such important issues in in where we find ourselves today we’ve very much been active in looking at how to exacerbate the activities that we’re running there we’ve been working with the multiple groups of both our fellow astate owners around the world um organizations like the principals for responsible investment business and human rights resource centre which is a really excellent sort of ngo focused on the intersection of human rights and business particularly in a post-covert response um and others so i think we’re going to be very much setting our agenda for the next year on focus on human capital management um specifically in light of what does this mean post the pandemic and we’re not even post it yet as we know so very much hear that and executive compensation as well is also one of these key priorities we’ve just got some of the results of our proxy voting activities for the last year where we’ve really really increased the votes against um particular companies that we don’t think are paying for performance um going forward and that is going to be something for follow-up obviously as we as we really think about um you know going forward so i hope that addresses it i’m sorry that it doesn’t capture everything in its full area we did just publish the value of engagement yesterday which gives some highlights as well on these activities where hopefully the board can get a little bit more updates on where we’re trying to prioritize these really important issues no thank you kirsten i appreciate that um and this is not meant to add uh you know just more to your already full plate uh but probably just um what i’m asking i think it’s just really to keep an eye with respect to any developments uh relative to that whole area of human capital management it is going to be top of mind as more people are seeking to get back into the economy and the behavior companies in terms of how to accommodate certainly their needs and hopefully not exacerbating the vulnerabilities that we saw as the pandemic hit and certainly the recession following that yeah we hate you thank you okay thank you very much betty for raising that issue um i i agree um and i and i think maybe one of the things um chris and kirsty that will want to do is um like the value of engagement um communication that you sent to the board yesterday just making sure that we continue to um continue to make um you know make the board aware of actions that we’re taking or others that we’re working with um you know both on on our you know our work on sustainability and climate change as well as our work around governance and human capital management and inclusion and diversity we have a long track record and a solid track record and we just want to make sure that we continue to i think hone in on these same issues but how everybody’s looking at them in a new light given them given the pandemic so Betty appreciate you bringing that up um we have a couple of additional comments um first I’ll go to Harry and then to Sharon Harry thanks madam chair I really appreciate Kirsty’s comments and of course i lend my full support to controller Yee’s comments but I also want to be clear it’s not my intention to throw additional overwhelming work onto the staff and derail a work plan that we’ve thought about but i view this whole issue of human capital management not simply for something that the investment committee can look at uh we may meet as a full board as an investment committee but i think this year tomorrow during the work plan adoption i’ll be asking the board to adopt the work plan with flexibility so that we might find some time off cycle to have some conversations about critical issues this could be simply one of them and as we in our calstrs approach is we educate ourselves about what we are doing currently around an issue and what we might be thinking about going forward into the future it’s my view that human capital

management and the um one example of that is the growing inequities between executive pay and worker pay is something that has been growing for a long period of time that i believe is a risk to to the larger society but how do we narrow that in and focus in on what does that actually mean to the calstrs portfolio what are we doing currently who are we collaborating with on these types of issues to talk to companies that we are long-term investors and how workers are treated etc is important to us but this isn’t something that we’re just going to dump on the staff and say go do this we might begin with a you know a 90-minute session sometime this year what are we doing currently what is our view around sustainability that also includes human capital management and what might we want to do in the future so um i just want to be clear about that that i have a lot of passion and believe there’s a place for this conversation and time for this conversation for us to have as an organization without derailing the work plan that we have in place currently for this year and the transition to a low-carbon economy as well as looking at Asia and China and its role in the portfolio going forward so I want to just really be clear about that thanks thanks madam chair thank you Harry thank you very much for providing the the clarifying comments I think those are um those are important um to to make sure that we retain the focus on the items that we’ve already identified um but think about how to be flexible um you know because new issues or new new approaches to some of these issues will continue to arise so thank you um Sharon I’ll turn it over to you and i’ll just and end this because I know we’re ready to vote can you guys all hear me okay um but I just want to lend my support to Betty and and Harry’s comments I just think you know it it just feels like the flexibility we need to have as a board there’s so much going on in our world and i think between coronavirus and um you know the race riots and the systemic racism that we’re seeing that’s just kind of been revealed through the coronavirus and the income inequality that’s been revealed these are big issues affecting our world and our country and my town of la um your towns um and so i i and i think this issue around the workforce risk the risk to workers and and how this is impacting um black and brown workers disproportionately to the other workers I do think it’s just a bigger piece of the conversation that I hope we can have i think we’ve historically you know worked on the e and the g and i think it definitely feels like the times are revealing work on working on us and the s part and i know christy you and your team have been doing something we’ve been doing some talking together about that issue so i really look forward to the conversations with our board moving forward to harry’s comments you know we have some topics that we’re focused on but clearly i think um the world is is revealing some issues that i do think propose some systemic risk to our system in the area of workforce risk so i look forward to us figuring out ways to talk about that and giving that some air time in the next year so appreciate appreciate those upcoming conversations great thank you very much sharon um so there aren’t any other speakers in the queue um this is an action item so I would love a a motion and a second for the I know of approval so Sharon removed approval second madam chair um uh Gayle thank you Gayle seconds, I see Roslyn on I think what we need to do is we need to be doing roll call votes given the format that we’re in so I’ll turn it over to you so miss Bradford yes Miss Hendricks yes Mr. Keiley yes Mr. Prezant yes Ms. Yamamoto um miss Miller for the Director of Finance yes state treasurer Ma yes um Mr. Yamanaka for the Superintendent of Public Instruction hi and controller e oh did you i think that was a yes she yes okay great thank you okay great thanks rod okay thank you everyone um so moving on to um we have agenda items 11 11a and 11b um we are running a little bit behind

i know that we we started a little bit late um but i just want to remind everyone that for these two items we’ve got 10 minutes each so we’re trying to to complete these two in about 20 minutes um i think scott maybe i’m turning over to you yes great good morning my name is scott chan i’m the deputy cio and i wanted to introduce this topic by starting with a quick overview of the sys portfolio so sys will be consisting of two components the first is the existing public equities portfolio that you’re familiar with it contains sustainable investment managers and activist investment managers and we’ve been talking about a future portfolio consisting primarily of private markets types of assets we discussed this in light of an innovation like sleeve to capture ESG type of investments today we’re going to be focusing on the sys public equities portfolio and specifically we’re recommending a global equity benchmark and this is the only action item for the board in this item um this policy is unique today in the sense that it does not contain a benchmark and we wanted to select a benchmark to align the risk return objectives with the goals of calstrs fund and how we want to manage global equities in the future in calstrs so i really want to make three points and that’s number one the benchmark that’s selected the msc aqui imi it’s a global equity benchmark it better aligns and represents the board’s global equity policy benchmark and its objectives secondly it’s going to enable our team to manage risk across a range of public equity strategies and this is consistent with the risk budget approach that we’ve been pursuing so it’ll be consistent with how we manage global equities where june and her team have really led the way in the discussion and recommending a risk budget and a global equity benchmark last fiscal year um the second part of the item um is a little nuance but i just want to run through it briefly that makita is recommending the low-carbon index be incorporated into cis compensation hurdles so this is not a recommendation for action by the board this is delegated to our ceo jack and ennis and just quickly the low carbon index is a special mandate you’ll recall it was suggested by the board and recommended by global equities in makita and so in this one special mandate case we believe that it’s best to integrate the risk return management into the sys equity portfolio the other special mandates will likely remain as special mandates as they are and so uh currently this is being managed by the global equity team as june mentioned briefly in the last item with oversight by the system and it’s going to continue to be managed this way um so in conclusion they’ll have roughly 6.5 billion of equity of an equity portfolio and the collusion here will help them manage the risk and lower the tracking risk of the portfolio we’re going to bring back the special mandate policy likely in september or november to formalize a remote removal of this low carbon index and incorporation into um the cis um policies policy or his team so with that i’ll hand it off to christie thank you scott hello everybody on the board i’m kirsty jenkinson the director of sustainable investment and stewardship strategies it’s nice to be with you um if i could go to the next slide please um i’m presuming somebody else is controlling the slides perfect great so where we’re going to run through these um this session is i’m going to give you a little bit of an overview of the map of the SISS portfolio and dial very quickly into the recommendations that we’re making today and then i’m going to hand over to Meketa as Scott has teed up to give their opinion as well so on the next slide i always take this opportunity as i think is um very important to remind you of the three core activity areas um for the assist team so if we could go to the next slide please while these areas overlap in many ways they are quite distinct strategies um the sustainable investment focuses on how we allocate capital in line with our risk return goals and this is what we’re focusing on today but when we meet with you we often talk to you about some of the other items the stewardship activities that’s how we influence companies and policy makers and we also have strategic relations as a core part of our team which is how the investment branch manages our internal and external relationships including with our diverse range of stakeholders so again one tour and take you to the sort of the multi-difference of approaches we’re only going to be focusing on one today predominantly which is a sustainable investment piece there this is mirrored on the next slide um when we look at the overview of the cis

policy scott has highlighted this but i just want to be quite clear that um the cis policy is a little bit um different to some of the other asset class policies as it’s got a few more sub-segments than other policies so just to recap next slide please there are these three components there is the stewardship program policy that governs our stewardship activities there is the securities litigation policy which is owned by the office of our general counsel and with whom cis corporates on the implementation and then this assist portfolio policy which relates to our investment activities and that’s again what we’re focused on today so again i know it can get a little bit confusing when our policy looks slightly different to the others and that’s the red line version that you see in front of you so on the next slide please if we look to spending a little bit of time on this road map because i think it is important to sort of orientate you to the trajectory that we’re trying to follow and we recognize that there’s quite a few moving parts so hopefully this will help sort of keep us all on track as to where we’ve come from the evolution of the cis portfolio and where we hope to go in the future so at the start of the year in january which obviously now feels like a completely different lifetime um you approved changes to the stewardship policy and our annual stewardship priorities and they just came out a little bit in the discussion we’re having earlier on the business plan as well that’s corporate and market accountability broad effectiveness with a particular focus on the oversight of human capital management workforce risks and diversity the low-carbon transition and responsible firearms and as i alluded to we’ve obviously been looking at reflecting on these priorities in light of the pandemic and we’ll be keeping you apprised of those as we go forward now in january we also had some initial framing discussions about the concept of expanding the investments in the cis portfolio to include other asset classes notably private asset classes and in march we followed up on some of these initial ideas with some of the examples of the types of investments that could be attractive for the SISS portfolio that brings us to today in July where we’re asking you to focus on the recommended changes for the existing SISS portfolio which is comprised of Scott said of public equity assets so essentially think of it as we’re hoping to ensure that we’ve got the most solid foundation for our current portfolio from which we can develop it further so we’re recommending a new benchmark a shift in the portfolio construction all with the express aim of better managing our risk enhancing our returns and more broadly aligning with the goals of the total fund but we know we’re not going to achieve everything today so my colleagues and i we will be back over the course of the rest of the year to discuss with you a number of other items how we think about setting appropriate risk budgets for the sys portfolio we’re following up with more tangible and specific details about the new investments that we hope to make in the SISS portfolio we will be able to update you on progress on multiple areas of activity and implementing the low carbon transition work plan that affects both assist portfolio and the rest of the cancer’s portfolio and we’ll be making a specific request to adjust the special mandate policy that currently governs the low carbon index and we’re going to be talking about more today so hopefully that sort of sets the scene i recognize again lots of different parts here that will hopefully give you the trajectory and the strategic sort of approach we’re taking to this so on the next slide please um let me summarize the substantive required recommendations that we’re seeking your approval to change in a nutshell we want to be able to manage the current portfolio in a more holistic manner we want to look at the total portfolio risk return characteristics in order to optimize how it’s constructed and aligned with the total funds goals i think it’s fair to say that the portfolio was traditionally managed in a more siloed manner and the team and i want to change that and believe it’s really going to help us moving forward and obviously having one global benchmark for the whole portfolio is a critical step hence our recommendation for the custom msci all country world investable market index or as it’s referred to the msci aqui imi we hope to remove certain geographic designations that mischaracterize our existing strategies and we hope to be able to consider a range of public equity strategies from active to passive all of which intentionally integrate a consideration of esg or sustainability related factors as a value driver in the investment philosophy the portfolio construction and the decision making process and finally we’re recommending that the cio or his designate has discretion over the portfolio’s risk and allocation in the interim as we work through the current portfolio transition and then refine our recommendations on a risk budget and an allocation range so on the next slide just to quickly dive deeper into the recommended change of the benchmark this slide summarizes our rationale for

the selection of the custom msci aqui imi but just to spend a moment to highlight the process by which we came to this decision the system conferred extensively with chris and with scott with the makita team with our risk team and our global equity colleagues on the choice of this benchmark in order to better align with the board’s policy benchmarks and risk return objectives and on the next slide just to provide a little bit more detail on the recommended changes that we’re hoping to um create in portfolio construction i’m just laying out here the current components of the cis public equity portfolio we’re in the process of rebalancing the activist portfolio which is a particularly high active risk due to its very concentrated nature we’re maintaining the current sustainability focus manager portfolio but believe there may be merit in reviewing the range of options available for us to invest in and we’re seeking to fully integrate the existing low-carbon index which is currently jointly managed by sys and our global equity team colleagues internally we hope to integrate that fully into the sys portfolio and compensation as well which makita will comment on shortly so my final slide please the last one i’ll wrap up about a little bit more about the inter recommendation to fully integrate the low carbon index into cis including our compensation as i said we’ll be bringing the special mandate policy which currently governs the low-carbon intex back to you for formal approval of this shift in september but we believe this is a sensible move as the index as you can see from a portfolio construction perspective is a very good complement and diversifier for the cis portfolio and for our wish to manage the portfolio holistically and lower the risk um clearly this move also aligns with my team’s focus on understanding the low carbon transition and how to work with other class asset classes and positioning our total portfolios most effectively for it and as you know this is a fundamental part of your work plan and finally i think and it’s important mentioning this but we will come back to this at later discus meetings there’s been significant developments in the market related to low-carbon investment since we funded this strategy three years ago with improved data with improved analytics we believe we’re in a much better position now to both reduce portfolio carbon emissions and limit active risk as the current index does but also consider opportunities to identify some of the possible winners and losers in the low carbon transition and thus create excess returns the team and i think it’s very timely and appropriate to conduct a comprehensive review of this strategy in light of these exist you know exciting developments that are happening in the market and the urgency of how we think about these issues and in light of our current work plan on the low carbon transition so i’m going to hand back briefly to scott who’s then going to transition over to makita as well great so again the major ask today is for the approval of the investment benchmark recommendation and of course if we change the investment benchmark and include the low-carbon index it’s going to have compensation implications for cis makita will preview those implications and the recommendation to jack our ceo and just as a reminder of the process um our ceo ceo has the delegated authority to adopt benchmark changes in the comp policy so if the investment committee today approves the investment benchmark for cis makita will make a recommendation for compensation changes to jack and jack will decide to prove it or not it does not go to the compensation committee but rather at the next board meeting or as soon as practicable the board will be notified of any compensation changes that jack has approved so with that said i’ll hand it off to akita and just before um before we go to the consultants i just i want to acknowledge that we do have a couple board members in queue so we’ll have makita comment and then i’ll turn to the controller into bill thank you go ahead please thank you uh good morning everyone this is mika malone with makita investment group um i think just a couple of brief comments so there are no slides that you need to focus on for for our comments i’ll note that makita’s memo begins on inv 171 if any board members would like to refer to that while i speak but from makita’s perspective and i think as kirsty and scott have noted very clearly there are really three main areas which we’re asked to weigh in on one with respect to the benchmark adjustment for cis i think moving to the acqui the custom aqui imi makes very good sense in terms of where the portfolio is going and and what the construction looks like it aligns well with the broad portfolio objectives within global equity as well so makita concurs with that recommendation that staff has brought

forward in terms of the low carbon indices which are already a component of the cis portfolio but removing that special mandate tag so that they’re more formally incorporated into the broader portfolio makita also concurs and believes that’s the most appropriate way to look at the portfolio as as these have become i’d say a core part of the of the work of the board over the last several years what moving those more formally into the to the benchmark and the policy means is that as scott mentioned there would be an implication to the incentive compensation right so you went from a very active portfolio as kirsty mentioned to now a portfolio that will have a spectrum of assets from more passively managed like the low carbon indices to more actively managed as some of your sustainable and activist managers are this means that from makita’s perspective the tracking error so the active risk in the portfolio will be reduced and we believe it will be appropriate to consider reducing the scale maximum within the incentive compensation to align with that reduction in active risk in the portfolio so nikita outlines in our memo where those numbers come from i’ll i’ll save most of my comments there as i know that there will be further discussion with the ceo etc but ultimately we’re recommending a 25 reduction in the scale maximum to align with what we believe for this first year the reduction in total tracking error will be i did want to just close by noting that this is a portfolio in significant transition and we believe that all of this should be reevaluated at the end of the fiscal year to identify whether it’s working as planned whether the timing has worked as staff has laid out and also whether the incentive compensation ranges need to be adjusted based on where the portfolio lands so I’ll close my comments there great thank you very much Mika we’ll turn to some board members for some comments or questions so first um controller Yee thank you madam chair um and first of all i just want to thank kirsty and the team for really um developing and maturing this portfolio and i know it is uh still fairly fluid that just the tremendous work that’s been done on this um just a request and not for discussion today madam chair but perhaps for the september meeting if we could have a little bit of a deeper dive with respect to how we are going to ensure that the other portfolio managers will be essentially overseeing their own sustainability decisions and not kind of looking to push them to this particular area um it’s uh I think there may be a tendency to to have that happen on the natural not with any intention but but just if we could get some discussion about that and some assurance about that thank you great thank you i’ve got that noted i appreciate that betty and we’ll go next to bill thank you kirsty and your team once again a great presentation uh kirsty you mentioned in in your uh presentation that there were changes in the market in the last few years that uh enhanced the ability to measure success or failure uh what what are those changes that have emerged in the market sure absolutely um and this would probably build on you might remember again back in um earlier in the year when we for example had brian diese from blackrock come and talk a little bit about some of the specific areas where they’re seeing um you know better data availability on understanding you know carbon impacts not only just today from a pure like what does the company’s carbon footprint look like but what is um what steps are companies taking to help them to be more resilient in a low-carbon economy how can you model and think about that and then how can you reflect that into a portfolio and potential weightings so it’s elements like that i put it down to two things one we are seeing um a lot better sort of professionalism i would say in the across the asset management industry of how they are incorporating um climate factors and other esg factors as well so this is now not just being done by sort of specialist research groups but it’s been done by like bulge bracket asset managers and really kind of like the smartest minds that we have kind of thinking about how to integrate this into you know really thoughtful financial um decision making and then i would say it is back to that data you know this is also you know groups now through whether it be machine learning whether it be through sort of a ability and ai we’re seeing huge much more capturing of data that is going to be more helpful to us as an investor to understand a company’s future resilience to a changing world and that’s what we think

is most important for us to try and capture i think it might be helpful and i don’t want to put any more on your plate but just to have maybe a short description of what’s happening in this area because i think it is really vital to demonstrate that there is a quantitative means of measuring uh the uh the the portfolio’s uh uh you know carbon free portfolio sure and i will caveat bill you know there are still constraints i don’t want to make it sound like the workers will be done and everything is is crystal clear but it’s certainly different to where it was even a couple of years ago and again back on that sort of the pace of change of that we are seeing i think it’s very appropriate that we can give you some updates on on what that looks like and it’s still where we need to head but what’s happened certainly in the last couple of years and just one more final question what was the group that presented at our last off site last october uh that we’ve used uh to assist us in measuring that sure absolutely i think you’re referring to rhodium group that came and presented to us at the off site we’ve had a number of discussions with them not least with our real estate team and colleagues thinking about physical risk as it affects our real estate assets we’ve got a number of exciting updates that i think we can provide to you on how they’ve been extremely helpful to us on that so hopefully we’ll have a chance to sort of go through blow by blow much of the work plan that we’ve been focused on on the low carbon transition both from a physical risk perspective which rhodium has been helping with us with and on a transition risk perspective which is more about policy and technology change that i think other experts are also um working with us on so yeah great happy too many thanks great thank you bill um next we’ll go to gail and then to harry gail thank you madam chair a couple of questions and thank you um for the presentation that was really helpful on um some of the you know we’ve talked a lot about kind of risk and and how we’re doing these risk budgets which we’ve been huge advocates of could you talk a little bit about how the cis portfolio will participate in the risk budgets yeah and maybe i’ll just jump in quickly on that one christie um so again sis is going to likely be managing two components in the portfolio the first one being the public equity portfolio which we very much wanted to again choose a benchmark which is a starting point for us for that risk management to the degree that the benchmark aligns with the board policy benchmarks and you know it indeed does the second is then to manage the tracking or error or the relative risk around that and develop a risk budget and it has phenomenal implications for the way we are going to manage that risk and and if you can think about the portfolio construction that that kirstie laid out in those three components with the activists sustainable portfolio and the low carbon index now if that’s incorporated then you know essentially a risk budget was going to allow them to optimize that portfolio where every risk they take to the benchmark which is aligned to the to our policy benchmark is generates a commensurate amount of return that is sufficient and that just you know i can’t emphasize that this is the starting point of risk management and construction in this in the cis portfolio because uh uniquely it doesn’t have a benchmark and and so we will be recommending a risk budget either in the september or the november meeting as we look forward to continuing to align this portfolio underneath the best practices and i think that again was set forward in our in our global equity team led by june we want this portfolio to be managed similarly great um thank you i really appreciate that and think it’s really important um i actually saw on inv 137 there is a benchmark there’s no benchmark am i i’m sorry there are benchmarks um for every managers and and i just want to make sure that you understand that that’s going to continue uh we already heard you say there was no benchmark okay thank you there’s actually no formal benchmark in the policy for SISS correcting because we want to manage the overall portfolio underneath a an aggregate benchmark that makes sense for CalSTRS okay got it I appreciate that, thank you very much thank you madam chair great thank you gail harry thanks uh madam chair i do have uh a couple of questions but i can uh follow up with mika offline it’s really around the cost of the portfolio uh reducing the volatility and diversifying a little bit

really moving away from what the original activist portfolio was and it’s now i think this portfolio if my back of the envelope is correct will represent about three percent of the overall portfolio so it’s not immaterial and my hope is is that this will help us over the long term get to that seven percent hurdle that really is the ultimate goal so in the um in the interest of time i want to move recommendation the recommendation on inv 140 thank you thank you okay i see a screen of people i wasn’t sure thank you um okay so we have a motion by harry and a second by gail ross we’ll take the vote great um so miss bradford yes miss hendricks yes mr keely yes mr president yes miss yamamoto yes miss miller for the director of finance yes um treasure oh mr saha for the state treasurer yes uh mr yamanaka oh excuse me um okay controller e bye great okay thank you all right thank you very much um so we’re going to move next to item 11b um and i just want to do a time check with everyone you know i think we we were trying to adjourn the morning part of our meeting by 10 30. um that was ambitious but i do think that we can get through the next few items that we had scheduled through lunch by 11 and if we can do that then that’ll give everybody a break from 11 to 12 30 before we start in the afternoon with our speaker so i just ask people to keep that in mind as we try to move through the next few items so going to 11b i think um geraldine am i turning it to you welcome good morning good morning good morning good morning this uh item should help with your time because it’s fairly straightforward there are two major changes one would align the cis recommendations you just approved in this overarching policy so it’s adding the benchmark information that you just approved it also is changing its names assists because it keeps referring to its corporate governance so that will be aligned also the second change is with the asset allocation long-term targets you approved in november you had a first step this is us coming back as we expected right in six months with our first step it is slightly modified then the step we have in the policy because of market movements we try to tighten up as closely as possible our portfolio with this step so some are slightly different i itemize them in the agenda item um but they’re fairly small so overall we’re recommending these two changes to the overarching policy we do recommend them for july 1st um because it’s kind of a nice you know beginning of the fiscal year and we are managing the portfolio to these new targets and hopefully you approve them and then we’d probably be back in december or six months from now with the next step change so i’ll leave it at that and if you have any questions i’ll be happy to drill down any further on any of these areas okay we do have um one um comment in the queue um gail thanks madam chair and i apologize um i’ll make it really quick you know we just are curious about the market value of the one percent adjustments to step one in the in the board item happy um geraldine if you want to follow up on that and um you know the why are we going retroactive to july first we just want to make sure that have we seen kind of that retroactive adjustment before and and obviously when we when we look at this writ large we just get concerned when we see those types of adjustments so um be happy if you want to follow up on those though as well in the interest of time geraldine if i can jump in on the the retroactive i understand that we’ve had board members uh in the past uh raised that they don’t like retroactive and I agree a big part of it though is that back in the main meeting we really don’t know where the private assets are going to end by June 30. and so trying to change that is just so difficult and anticipate where it is

um I’m even worried about you know we’re raising private equity up one percent right now we’re halfway in between those two so we start the year a little bit underweight but um from performance measurement standpoint uh because of all the reporting that we do it is so much cleaner to start right at the beginning of a quarter end particularly really every six months it’s june 30 and december 30 that makes a clean performance reporting all of the different external reports and even compensation so that’s our reason for our request um you know real estate uh obviously might have some more write-downs but we think that’s reasonable to increase one percent and it’s aspirational but we have a lot of dry powder that we’ve committed in private equity so i’m worried about increasing that but i think that’s the right thing to do the next step in the future would be shifting one percent over to rms and then obviously our goal is to continue to grow inflation sensitive and private equity so we’ll look at this every six months next meeting would be November hopefully the world isn’t as volatile as it has been so we could do it prospectively rather than retroactively yeah that’s certainly our preference I’m you know we’re this is a little bit concerning so do we know what the market value then of the one percent adjustments are in total or just like well frankly most of them are actually uh made um you know because state has grown to 14 and it really has to do with the denominator how big the total fund is uh it looked like we crossed about uh 250 billion pretty steady at june 30 i’ll write about right in here um so if you do approve this um i’ll send out my mid-month asset allocation report tomorrow we’re actually pretty darn close to these actual targets oh okay as we came close to writing this item we were adjusting real estate or private equity trying to estimate that March 31 right up or right down in value great thank you thank you madam chair um I don’t see any other um any other speakers in the the queue um i’ll just pause i don’t know if um if Meketa or any of the other any of the consultants have any comments on this or if we can go to um go to a vote okay I’m sorry Harry, I have to do it I could highlight okay good okay I was just going to move uh the staff the recommendation found on inv 177 and for the record reference Meketa’s support for this item in their memo found on page inv 178 and 179 so the motion is to improve the recommendation second thank you so harry um made the motion and bill seconded um alan i see you up any very brief comments you have no we’re fully supportive we were involved in all discussions and support to recommendation okay thank you very much and harry thank you for referencing the um their memo and the materials as well um okay um so rosin we have a motion and a second okay so miss bradford yes miss hendricks yes mr keeley yes mr president yes ms yamamoto yes um miss miller for the director of finance yes mr saha for the state treasurer yes and controller yi hi great thank you all right thank you very much okay I think everyone knows where item number 12 is our speaker which is what we’ll start the afternoon session with at 12 30 so we will move to item number 13 Chris for our CIO report there we go thank you um if we can bring up those slides real quick turn the page there we go um i said earlier 250 billion i correct myself we were 246 uh at june 30. present today for the teachers that are paying attention we’re really at about 250 um because of the market rally so obviously as you know it’s been very volatile hit an all-time record high mid-year uh in december before covet uh the crisis hit and we experienced lots of volatility i have said to many of you boy uh only being up uh you know about 10

billion on the year doesn’t feel good because we want to make around 15 to 20 billion a year but compared to where we were at march uh 31st i feel a lot better so the assets are that is a record fiscal year-end close for us at 246. i should know the return numbers here shortly i i guess i would revise the estimate i sent out to you i think we’ll hopefully knock on some wood for micah will be roughly between three and a half maybe just shy of four obviously not great on the fiscal year because we want seven but it’s great to be positive uh most of our peers i’m hearing from uh different sources are landing around two percent to three percent uh so we actually might look good any fund that had a large exposure to government bonds will do extremely well as i told you um in an earlier email the top five stay-at-home stocks all had uh as a group a 25 return last fiscal year uh the next highest returning asset class was u.s government bonds almost 25 positive result uh outside the usa the world was very choppy uh and I mentioned that of all places New Zealand is the one country that had a positive 13 return in U.S. dollars uh we have exposure there but not much if you turn the page here’s our asset allocation uh and as you can see when you look to the new uh targets that you’ve adopted we’re actually very close and this is what we think is the correct uh June 30 numbers that will go out as i mentioned private equity at 9.6 roughly 9.5 it’s a little underweight that new 10 target real estate’s right at its target the the next shift as you can see rms at 8.5 percent uh we took some profits there but that also just had to do with changes in the overall global equity portfolio as it grew rms did not move as much and remember rms and we’ll talk about that later but rms does well in market declines which happened in the first quarter but it is going to be slow to recover in market climbs like we experienced in april may and june and as i have discussed with you many times that that rise surprised so many people that it’s very hard to readjust uh we’re very heavy in cash as i’ve told you we are continuing to hoard cash um and and if we need to overlay that into the portfolio the global equity waiting is now where we went from being underweight we’re now actually at market weight um and we’re likely to take profits uh we think there are risks on the head on the horizon so if you turn the page here’s the u.s stock market last fiscal year you may have to move your zoom at least i do you can see uh the enormous breakdown that we felt in uh february to march that low is march 23 and then the real surprising recovery uh people are now going back and rewriting history and saying this isn’t a bear market it’s more like a flash crash it meets the conventions frankly of a bear market and i think the as i’ve said to you the biggest change and the surprise of the speed of that april may june rally which was historic in terms of the market rebounding really has a lot to do with the pandemic and stay at home they are now realizing that you basically have the entire finance industry working from home uh if they’re and i think i’m similar where you’ve got cnbc or bloomberg on tv some of us have access to bloomberg people have time in their hands we suddenly have found that we have millions and millions of day traders and as I’ve given you examples of Hertz most recently Tesla stock stocks are seeing two to three times their total amount outstanding shares traded within a day uh meaning people are holding stocks for uh minutes not even days uh and flipping them around so this unusual activity uh actually has had a profound effect um on the usa and and i think is it will diminish over time as people go back to to work but we’re still in a health crisis and i’ll go through the risks in a minute next up would be a longer term picture of the u.s equity market so turn the page here it is over the last four years uh so you can really see the depth of that spike in march uh how much we have recovered but it certainly has been a volatile market

even over these time periods next page here’s the non-us market uh and most importantly the the recovery in march april may uh has been slower it has recovered but much slower you still have the questions uh you know brexit has now happened but you still have the questions of the uk growth in france and germany is weak uh growth in japan continues weak so this is the developed market index which again it’s about half japan uh or quarter japan a quarter uh the uk and then the rest of the world so uh nine us stocks were flat on the year slightly negative for us and anybody with a global portfolio like us will have that drag any pension plan or investor that had a u.s central plan will see a better result on the year next page the yield curve dramatic shift down as we have discussed with the federal reserve intervention moving interest rates basically back to zero so the whole curve remember uh six months ago we were worried about the curve flattening and that’s signaling and going inverted and that’s signaling a potential recession obviously no one predicted a pandemic creating a recession but uh what we have seen now is the curve is positively sloped uh but you can see through three years it’s virtually flat now an important point is the federal reserve because they’ve they’ve just thrown themselves at everything they’re trying to even to the point of influencing corporate bonds um the equity markets in different ways they are talking about one last tool is uh trying to control the shape of this yield curve and that will obviously be a challenge there’s different mechanisms on how they would do that but that 30-year rate you can see it such a tremendously low level and the 10-year rate below one percent uh interest rates are low and are going to stay low so that’s going to be a challenge now a lot of people think that’s going to doom returns going forward but what we saw in 2010 11 12 when interest rates were this low was that it stimulates risk assets it’s easy to borrow money and leverage and buy things and so risk assets actually do better we’re going to have to wait till the covid crisis the health crisis is resolved but the fed has said lower for longer again in interest rates and signal their moves next page so here are the risks if I climb up the old uh to the crow’s nest here are the risks that we have continued to see uh the the pandemic I have mentioned you many times there are numerous vaccines uh credit to Gayle Miller she sent me a link to the New York Times has a vaccine tracker that is just excellent really shows you real time how many vaccines are uh under in evaluation how many are in human trials where they are in their human trials um as the milken institute faster cures told us last time you’ve got over 12 vaccines to 15 that are going through human trials the odds are very good you will find something that works but it still may not take it still may take until the end of the year and then the odd situation if you’ve read about it uh glassmakers are have a shortage of glass they would have to make glass vials for almost every person on the planet uh and that is a posing a problem so i still think once we do have a vaccine this is still going to be choppy question about how many people will take the vaccine uh but i you know if we look out to 20 21 22 we may get back to somewhat of a regular world although as we’ve all said it will be different than we are today the positives still remain uh unprecedented government intervention federal balance sheet is multiples of where it was in 2008 and obviously you’ve seen the market rallies on any news about a vaccine or a treatment we all think that that’s very far ahead because you still have an immense amount of unemployed as we’ve said main street and wall street are completely disconnected next page so a couple of the risks uh and i guess i would change um we obviously i have been very concerned about the uh uh protests and the social unrest um the things that are coming up i i would mention that that we had the u.s election on here is a risk i realize now i took it off what i would have shared with the board and one of my concerns is a contested

u.s election we’re really setting up and that’s an active discussion of the potential the risks that the u.s election does not go well because of mail-in voting and a lot of uncertainty and protests um that level of uncertainty uh would be a tremendous threat to the u.s market um and then obviously the uh the angst of uh uh black lives matter the just the the crushing situation of uh uh that we’re facing in the usa and and the attention that it’s being drawn drawn to it i think is critical as you’ve said human capital management is a critical area of focus for us so these risks remain on the horizon i shared with the board some information about earthquakes from national geographic i think that’s something we always watch but any of these could pop up as a threat to what we’re doing and obviously as we get into the fall we’re going to be back with having to worry about wildfires particularly in the state of california and and that means electrical grid shutdowns so that concludes the the vast majority of my report we will be putting out our june 30 returns probably in a press release next week i’ll make sure that i email all of those to you once we know them the three-year return which is important from an actuarial standpoint is pointing to around six and a half percent net so close to seven but close does not count uh all those old adages about close not counting that is true when it comes to funding this plan and actuarial sciences six and a half doesn’t cut it um so it’s going to put pressure on the funding plan and pressure on the funding level of the plan um we’re dropping a good year from three years ago so uh 2000 fiscal year 20 um 21 it’s going to be important for us to produce a solid positive return over 30 years the plan’s been returning about eight percent uh but it’s not been a smooth eight percent the the difference between an average return and the geometric return are pretty sizable because we’ve had such wide swings in in the return in the last half of that 30-year period but i’ll have a whole summary out for you as soon as those numbers are posted but that’ll open it to questions um chris i may be um we’ll jump in we don’t currently have any questions in queue but i just wanted to tee up you know we’ve had some discussion on the call already about some of the issues that have arisen related to covet 19 and i know that there’s been some discussion that our real estate staff has had around working with our real estate partners to make sure that the workplace is safe as workers come back in so i wondered if you could make a few comments about that or if mike or his team might sure uh and michael wants to come on the line um I would say when it comes to CalSTRS uh again kudos to the IT department Ashish um and his team have just been amazing uh it’s I think we’re actually fairly efficient at working remote particularly with the trade desks uh challenge remains in private equity and real estate and infrastructure uh because those are uh much more uh interactive areas and investments uh the lack of travel makes it difficult we are seeing funds continue to close and and we are making some investments we’re also seeing opportunities uh to take advantage of the situation in terms of distressed credits and and helping companies in terms of our staff uh I just saw this morning that uh Cassandra Lichnock sent out an email in line with the governor’s recommendations uh that we will probably extend any return to the office out to september instead of looking in august and i can tell you from our staff i’ve done town halls with the investment staff the vast majority of them all want some ability to work from home from now on and uh over 90 percent are still very concerned about coming back into an office environment even with wearing masks uh there’s a desire to to continue to work from home so for now we’ll have to stay in that environment but it is going to have profound impacts uh in what we think of office buildings and the compaction of office buildings mike do you want to share some experiences and mike i don’t know if you’re coming online but i think that might maybe my specific question was around any discussion that we’re having with some of our real estate partners about how they’re being responsive to um you know their workers um some of the

labor unions that um you know are i think wanting to make sure that our partners are taking the precautions that they need to and thank you joy i i i’m glad you brought that back up i had that note uh we had received letters from sciu particularly about elkhorn some of our other managers trying to make sure that they’re doing everything they can in terms of worker safety responded all of our managers are are taking the front and cutting edge steps in terms of worker safety in terms of masks and social distancing obviously many of our office buildings are are vacated uh but that is a paramount issue for us uh and all of our managers um mike can you come on and talk about uh elkhorn specific I uh just reiterate what what you’re saying Chris I think that our partners are leaders in in how to manage buildings effectively and safely uh it’s actually uh in some ways very uh a very good time to test new systems and everything because across the country most of the office buildings are closed most of our partners are having regular conversations with with their managers on the janitorial and security staffs to make sure that they and the unions that represent them if that’s the case are involved in laying out safety procedures for when reopening happens and we are monitoring that situation and having our partners report to us any any new issues are coming up but i believe we are in the forefront of making sure this happens in the safe way going forward great thank you thanks mike and thanks chris um controller e do you have any um questions are you good i saw your hand up earlier and wanted to make sure yeah um you just uh asked my question joy it was really the broader issue about worker safety in our commercial and real estate buildings thank you okay great thank you okay um chris we don’t have any other questions into you so thank you um very much and uh just again um you know kudos to you and your team for um you know everything that you all have done to manage the the volatility and the uncertainty and uh kind of you know bring us through year end we look forward to seeing the the release with the official numbers and um and then you know looking ahead to next year so thank you all right our last agenda item before we go um into uh into a midday break is agenda item number 14 um an update on the collaborative model so it’s scott and lisa um so welcome hi Lisa good to see you and Scott welcome back and just as a as a reminder um you know we’ll obviously take the time that we need to for any um questions from the board um but we are we’re going to try to wrap up as close to 11 as we can sounds good great thank you we’ll try to make this a condensed version i know we’ve been going a little bit long so let me just make four points to start off with the first is that the collaborative model investment strategy continues to be successful and as chris was saying bending the curve so we just wanted to give you some of the more recent analysis we’ve done over the past three years we’ve hired roughly 27 investment professionals and of that that cost us roughly 7 million dollars so it was expensive from that perspective but we can attribute roughly 54 million dollars in cost savings to those 27 investment professionals we hired on an annual basis so as chris was saying it roughly an eight to one return on that investment moreover and it was a decent time for for some of those divisions but we can attribute about three three and a half billion dollars of excess returns which um um which is a tremendous amount this the second thing i wanted to discuss is that the pillars project remains broadly on track uh it’s you see the green in the chart and we’re measuring it from an aggregate perspective so as you know we developed a really a strategic plan around this with objectives and deliverables and action items and so what you’re seeing in that chart is the aggregation of that and i know that you know on the new details there’s a few yellows and but mostly greens across that um to that regard i just i want to credit the team we had a lot of momentum um and and i think um the really credit goes to the team the sponsors the leaders the the working groups that are in attachment three i believe in the item so it’s all their great ideas the hard work and the collaboration across the divisions that make this possible um the second thing i would would point out is that i mean thank goodness we had developed this strategic plan

um because who who could have foreseen the pandemic in the crisis we’re in but we’re able to mean obtain to be on track uh we’re not going to lose track of that because we have it all codified and you know again i would just you know want to give kudos to joy who who really recommended a monitoring process as well as the esm team led by jen spano where we put all this together and of course all the teams that came together to do this i think it’s really kept us on track the third while we have a lot of momentum now i do want to say that i would expect a few future delays because longer we work in a remote environment and we’re prevented from meeting face-to-face those areas are necessarily going to see delays i mean you can think about recruiting you know it’s going to be very difficult for us to meet face-to-face for some time with some of our candidates um the fourth and i think there’s there’s a lot to the objectives and items you might be reading but if i were just to clarify in one statement what is our biggest challenge today in the pillar project in the collaborative model it is simply recruiting we do have some those inc uncontrollable issues obviously uh we don’t know the course the pandemic and when we’ll be able to meet face-to-face uh on a typical basis but on the other end we’re facing significant compensation issues in recruiting talent and i guess who would have guessed that as well because you would think that in a typical recession there would be wholesale teams we might be able to pick up because people are getting laid off it’s a difficult time but it happens that in the area we recruit in investment management that’s just not happening people are gainfully employed there’s less unemployment people are actually also getting bonuses so it’s it’s very difficult for us to compete and we’re losing candidates on that end the other issue we have is that new candidates are coming in and necessarily we’re we they’re bumping into the top end of the ranges when we bring them in which i think creates uh internal equity issues with with the current staff that are currently executing the cloud model and we’ve been very successful in doing that um thus far so with that said i want to hand it off to lisa who will start to talk about some of these accomplishments thanks scott and yeah there’s i would say the last two reporting periods have really been what i call the data collection and analysis period where the pillar groups are working really closely with our continuous improvement team identifying the pain points and the bottlenecks of our current processes and documenting a tb process with new solutions to ensure and support optimal efficiency over all of the pillars and although this project was born to support the collaborative model i would say that these more efficient processes are going to benefit and support the organization as a whole and so i want to quickly go over a few of the highlights for each of the pillars starting with hr which you’ve heard earlier from chris is the key to the success of the collaborative model moving forward because we need to bring in that needed talent the first objective really relates to recruitment how are we going to attract the talent we’re looking for and can we make the process more efficient what we’ve implemented so far as a new model where our hr specialists are now consulting with investment management and hiring managers for each vacant position rather than just reviewing a package that’s sent in from a business hr liaison so basically what we’re doing is we’re creating customized job opportunity bulletins for each specific position and it’s not just to talk about the job duties but it’s to to uh uh identify the necessary competencies and the personal characteristics for each position so each position uh job opportunity bulletin that will go out will be specific to the duties and and and to the characteristics we’re looking for for that particular position and not only is this going to save time but it’s going to really make sure that we have a quality candidate pool in the future additionally once the hire is made you heard chris talk about uh the culture um and so the pillar team has identified the need to ensure that the current culture and the investment branch is maintained and so one of the deliverables is the objective to develop an onboarding experience document that’s consistent throughout the asset classes we might attract somebody from a financial institution globally and it might be that that environment they came from is very different the environment we work in at calstrs where everybody is very collaborative and very respectful of one another all looking to this to the common goal so how can we make sure that the experience for employees coming in across the asset classes are consistent and then the next objective is related to succession planning and so a succession planning model was created that identifies the competencies necessary to fill the more senior positions and then the organizational development

team is working with investments to just to identify the future development opportunities that are necessary for internal staff to be ready for those positions so what are those competencies and how are we um supporting the organization internally to make sure that those people that are ready for those positions have the training and development that they need in order to um to learn those competencies that may be necessary moving on to procurement there are two objectives in this pillar the first one is to negotiate legislation to amend the teachers retirement law to grant the board authority over the procurement process and the second second objective is to establish an expedient and efficient process so i would say an extensive amount of research as well as a number of surveys were completed with national peer groups and other professional groups to help inform that language of the legislative bill ab2510 to streamline our investment procurement efforts and although the bill did not go forward this year due to the covet pandemic it will be reintroduced in the next legislative cycle but in anticipation of this approval the new process in which investment partners will be procured is currently under development with procurement the cit team and our investment uh partners and will eventually be provided to you for your approval because the board would then have the approval uh over the procurement process uh moving forward but while we wait we have made huge strides in streamlining our current process during the last two quarters the pillar team has implemented docusign kind of about a necessity with the with the environment that we’re in for contracts we’ve developed a web page for electronic submission of bids from our vendors and we’ve developed templates for business areas to use that improve the quality of the documents that are submitted all of these all of these processes are going to definitely save time in the overall process and on the travel front the heaviest travel users and investment in our retirement readiness division were interviewed based on the traveler experience and pain points in the process all of the existing travel processes were mapped to identify complexities in bottlenecks and the data was then themed and possible solutions to the issues were identified so we’re making huge progress on the travel front for sure and the reason why it was important to get this one kind of ahead of some of the other pillars is calstrs is also in the process of implementing a new mobile software tool called concur which integrates the booking of travel with with the reimbursement process and what this will do is allow the travel traveler to change flights more easily to scan receipts for reimbursement and basically it will allow the traveler to compete to complete their travel request form on their uber ride home from the airport as you know there’s investments especially there’s some investment uh professionals that work for calstrs that maybe travel fine time five times in a month and so basically they’re they’re not getting reimbursed for that first travel claim before they have to go on their next one and so we really wanted to make sure what the traveler experience felt like and we’re trying to to resolve some of those issues that have come up um in thinking about that so those are the big three for me and i’m going to turn it back over to scott to show some highlights on the other progress of some of the other pillars great so i’m going to cover the hybrid category and i’m going to start with technology and just pull out a few things that they’ve created a holistic data strategy vision you heard a little bit from mike and others that financial services is behind in terms of data management but we want to unify we want to develop a unified system where we can aggregate the data across our platforms so we can make better informed decisions and also attribute those decisions and historically review them they’ve also been able to put in place a crm system in the private markets which is going to be very helpful for us to track our deals and pipeline they can better collaborate and communicate across the platform so people know what each other are doing and more importantly as we go into partnership negotiations we can we we have our fingertips the assets under management the fees we’re paying what’s in the pipeline and it’s leading to more effective results in our in our negotiations um secondly we have the the legal component of the hybrid pillar i think they’ve done a good job of developing the plan around the future needs we’ve talked about the cloud model and it’s kind of throwing a pebble into the pond and and if we’re accelerating and bulking up our staff and moving forward then the rest of the organization needs to as well so they’ve developed a capital human capital strategy around that from a legal perspective and they’ve also been able to help streamline some of these processes as well because we’re in the in this remote working environment finally the the communications team um they’ve been able to define the cloud model succinctly which um i think will be coming to you soon in in maybe a couple of pagers so that you’ll be able to communicate the cloud model

succinctly and effectively to others and they’ve drafted a communication strategy and outreach plan the financial services segment is our newest pillar and i suspect by the next update we will have filled in the objectives and action plans for that piece of it so with that being said i want to open it up for some q a okay we have a bill in q i’m bill go ahead well i just wanted to build on uh the comments i made earlier about the collaborative model and uh one area that i think that we need a uh clearly need a more robust uh move and that’s in the communications end to the extent that we are changing the way we do business and foreseeably we will even change more dramatically given the uh change that has occurred you know globally uh in every respect on every business and and i think that we need to really describe the savings that can be attained in a way and communicate it with not only our members so that we have that support i think it’s vital that we have the support of our membership as well as public figures legislators that they have to understand that this model uh is the first step into uh really producing more robust returns for the fund at a time when that is the key to really meet uh the moment of funding these pensions we’ve got to do that and so i just want to uh you know again congratulate uh scott and the team on the pillars project because i think it’s that we’re moving in the right direction but i think that we have to do this in a much more aggressive way i mean i know i’ve spoken to scott about this and others you know we don’t have a lot of time and we move slowly uh within government and at calstrs and i think that whatever we can do as board members to push this uh we’ve got to do this because you know it’s just going to become much more difficult to really fund these pensions unless we build a model that can reduce costs and therefore increase returns so i just wanted to build on that because i think for me it is one of the most important issues we face uh bill thank you so much for your comments and um you know i wholeheartedly concur you know i think that the committee um scott and lisa have made clear you know over the past several months how important we think this project is and it’s just underscored um both by bill’s comments now as well as some of the comments that we heard earlier during the discussion of the work plans you know i think that we all not only support it but also our start you know now that we’ve started to try to attach some numbers to what we think will be the the decreased costs for the fund and in terms of um you know maximizing our bank for the buck the other thing i think that’s really important is as you continue to work on the pillars project and report progress to us if you start to see any of the action items be delayed go off schedule run into roadblocks i think it’ll be really critical for you to you know escalate as appropriate or inform the board because if that means that we need to reassess some of the estimates or projections that we’ve made in terms of what we think will be um savings or reduced costs i think we want to we want to know that um and to be able to feed that information into the kind of um sort of you know advocacy and strategic approach that that we talked about and that bill outlined absolutely some of these processes we’re putting in place we won’t know if they’re successful until we have our first couple of hires or our first a couple of of contracts that are put in place with the new process and so we’re gonna it’s gonna have to be fluid we’re gonna have to look at what we’ve we think are the answers and the solutions and see whether or not there’s any tweaks that need to be made to make sure that you know the process is going to work for all the different administrative areas that we’re looking to support this this strategy moving forward great great okay thank you well there aren’t any other questions on this item so scott and lisa thank you and and great work um that you’re doing both to move this forward as well as just to keep the board apprised um i i did want to make a comment that i neglected to make earlier which is that um you know in addition to the public comment that we had to open the meeting there is an opportunity for the public to also comment after the agenda items our team managing the the meeting has been keeping an eye on our public comment

line and so far this morning we’ve had no other speakers request to to make public comment but i did just want to go on the record to say that we’re watching that and we’ll pull people in if there are speakers that come on for future agenda items um so that takes us to our last item before the break i think what we’re doing now is we’re going on break and then we are going to resume um i guess we we ask all the board members to make sure to kind of come back in by around 12 20 you know 12 25 just to make sure all your technology is working because we want to start promptly at 12 30 which is when we’ll have our speaker from um from bloomberg um roz i see you just rejoined us is there i don’t i don’t think this was an action item but are there any comments that you have no i wasn’t sure if you wanted to do i have one additional information request but um do you want to wait till after the court meeting after the speaker uh yeah if we could do that could we cover the information request after the speaker before we go into closed session okay great thank you great okay okay well thanks everyone thanks for a really productive morning and we’ll be back online in a little over an hour thank you okay great i think we are we’re live so welcome back everyone um to um the resumption of our investment committee open session um we are at agenda item number 12 which is a presentation by our investment insight speaker i’ll turn it over to Chris Ailman to introduce Ethan and kind of set the table for our discussion but I did want to let board members know that what we’d like to do is have Ethan present and hold questions until the end of the discussion and then we’ll run through any questions or comments that you all have so Chris i’ll turn it over to you thank you, thanks Troy I want to welcome Ethan Zindler to our webcast um Ethan is head of the Americas for Bloomberg new energy finance uh Bloomberg new energy finance uh is really a leader in researching energy of all types around the globe where energy demand will be and then where the energy supply is going to come from we’re one of the few pension plans that are members of bnf i have been to their annual conferences probably about 50 75 of them uh with a handful of people uh incredibly educational one of the few conferences i go to and i’m spending most of the time googling uh um terms and and things that i’m not used to about distributed just distributable grids and things but uh ethan is really here to really go through kind of their forecasts for the future give you a high level view on energy and what especially what the sources are and i have challenged many of you to ask him questions so he is ready so without further ado i will turn it off over to ethan simler chris thanks so much and great to see you and thanks to you and to to Kirsty and to Joy for for hosting me and Chris Jack for hosting me today um really uh an honor to be here uh looks like um a nice blue sky day out there at CalSTRS based on all your backgrounds um welcome and welcome to my attic here in Alexandria, Virginia i’m gonna um chat um for about 30 minutes about our long-term view of the future of energy and decarbonization overall uh were these more normal circumstances that i would say interrupt me and i’ll ask i’ll answer questions as i go but i would say save them for the end it’s just easier over over zoom next slide please real quick as was mentioned and i won’t try to explain this first slide to you um but um bloomberg nef is a division of bloomberg that is focused on the energy transition writ large we started by focusing on renewables but we’ve expanded out to look at all areas of the circular economy uh various cross-cutting technologies different areas really across across the the entire economy that we think are being fundamentally changed by a move towards lower carbon like i said i’m not going to walk you through each one of these icons but i’ll probably touch on a bunch of these different areas as i speak over the next 30 minutes next slide please so bnf i would suggest one fairly simple thesis um that that we believe very strongly and if you could click through each one of these

right away just to put them all up on the screen the first is that how the world generates and consumes energy is all changing very very quickly and very substantially i’ll show you a lot of slides that that kind of go up and to the right and some important ones that go down to the right as well our second view is that the change presents really substantial challenges and opportunities for the incumbents and for the newcomers respectively third is that a massive amount of new investment has already been deployed to support these changes i’ll show you a few charts on that fifth is that some areas of the economy are definitely moving faster towards decarbonizing than others are and some are uh we have some technologies that are very viable right now some that are really on the cusp of viability uh and then some that frankly are aways from from being there and as a result fossil fuels are still very much very relevant towards serving those parts of the economy on climate change i think it’s important to note that there has been some really important progress that has been made to date and we are moving in the right direction in a number of areas um and um but most importantly we don’t think we’re moving nearly fast enough and if there are not major policy changes we won’t uh be able to address climate change uh next i would say that more change is inevitable and always try and say this to an investment community which is that there’s always these the default assumption is that doing nothing is a conservative position um but i would say if you look at the level of change that we’ve seen in energy and transportation in the last 10 years you could have lost a lot of money just by standing pat and not thinking about the dynamics underway so the status quo and assuming it i think is potentially the riskiest bet you can make overall and then finally I will not go into great depth about COVID-19 but I would just say that it is dramatically complicating the picture overall and I’ll try and show a few slides at the end if we have time on that because frankly it is it is um it is really changing the perspective on a number of these things so the next slide please sorry i’ve got a little delay on my end um i know that you you as a group heard um from my friend trevor hauser of the rhodium group and and you’ve been briefed on climate so i’m not going to dwell too long here but um you know suffice it to say that the the rate at which we’ve seen um co2 emissions uh rising the amount that have been going into the atmosphere has very dramatically accelerated really since uh really since 1950 but even since 2000 and you can see that the sources are gas liquids and solid fuels each making an important portion of it next slide please and i believe the next slide will show that you know last year was the second hot hottest um year that we’ve recorded on record uh and uh again without dwelling too much on it um the the the issue around climate change is no longer theoretical it’s definitely with us uh and we’re seeing the impact of it right now next slide please if we look though one of the things that i think is worth noting is that when i mentioned earlier that there’s been some progress today is that we have seen emissions slow uh in advanced economies that is that the wealthier economies with with greater resources more service oriented are able to start flattening their co2 emissions increases while the rest of the world mainly oecd countries um it has continued to rise however the rate at which co2 emission growth has been rising in developing countries has actually been going down so in other words they’re just not growing as fast as they used to be and we are hoping that we’re getting towards some kind of a peak there as we look longer term next slide please now i think it’s important when we talk about the overall sort of challenge related to climate and co2 emissions that we recognize that there are multiple segments of the global economy that are responsible for total greenhouse gas emissions in particular you know we do think a lot about electricity and transport which you see on the right-hand side but industry and agriculture also account for a very large percentage of overall emissions almost half globally however next slide if you would uh but I am going to focus a good deal on my uh conversation today around electricity and transport um and the the main reason for that is because that’s where we have seen some of the most interesting progress that’s where we really are hopeful that you can see

decarbonization based on the results that we’ve seen today those other areas are frankly going to be harder and we have seen less progress they also though are a bit less volatile in terms of their co2 emissions they’re fairly steady in terms of how much they produce next slide please so talking a little bit first about power and this is really actually where bloomberg nef we as a firm began by focusing on renewable energy uh and truly zero carbon energy um we’ve seen over four trillion dollars uh cumulatively invested in clean energy technologies around the world since 2004 which is when we were founded as a firm you can see that those red bars at the bottom that’s the asia pacific region and you can see that you know back in the early days it was much more of a story really of europe and the u.s but over time china in a typical year accounts for about half of the total investment that we see into clean energy globally with with other countries in southeast asia and elsewhere also attracting substantial amounts of money so each year now we’re seeing you know it’s really been fairly consistent over the last five or so years a bit over 300 billion almost as high as 400 billion one year but somewhere in that range year-on-year a new capital flowing into projects companies etc to build out this industry next slide please and what’s been driving this is i i like to think of the clean energy sort of evolution really in two phases the first phase you know probably ended about five or six years ago and that was a that was a phase in which basically um subsidies and uh mandates really drove the growth of renewables but really in the last five years and even less and some technologies cost competitiveness is what’s been driving the growth this is a very simple chart just showing you how expensive a typical multi-crystalline photovoltaic module was those are just the standard module you put up on your roof um they were about two bucks um per watt um back in 2010. i can even remember several years before that they were somewhere around seven or eight dollars a watt um but just since 2010 they’ve dropped from two dollars and 10 cents a watt to 20 cents a watt um and the reason mainly for this is because of a massive scale up on production from china and you guys of course know this probably way better than we do here on the east coast because california has been the biggest market for for photovoltaics to date as this has become more and more cost competitive and really economies of scale have been the main reason for that next slide please we have seen a similar story for wind turbines um and it’s interesting similar story in terms of a cost decline as you can see they’ve dropped by about 50 percent in the past decade um but um but for different reasons actually um it’s been less about economies of scale and china just flooding the market and and driving down costs um by by scaling up and more about the fact that there’s been um dramatic technological um uh improvements in wind turbines that are getting bigger and bigger um the blades that are attached to them can scoop up more and more of the wind they can be more efficient and so when you look at the cost on a per megawatt basis which is what this is based on the costs have come down very dramatically as a result of all this if you go to the next slide if you look at how much stuff for lack of a better term that the world has been building in terms of new power generating capacity the number one technology for a new build on a capacity basis has been solar that’s the yellow bar at the bottom wind uh you know not that far behind it about 500 um total gigawatts that we’ve seen um with hydro a lot of that built of course it’s worth noting that if you look at the top there the the coal bar is about 500 gigawatts that’s been built in that same time period with china accounting for a very large portion of that and obviously this is a huge part of the the problem in terms of co2 emissions uh india is a big part of the rest of the world segment that you see there and then as far as the bar of gas is concerned a lot of that actually is in the u.s as well as other parts of the world next slide please and by the way you may note there’s a lot of text on these slides feel free to read these later i think they’re intended for for reading purposes as well i’m kind of talking through them not necessarily touching on every point that you see written down on the page but i thought that if i left the text in then you could review it later and not have to take notes necessarily if interested um the the other point though uh just as as i was saying is that we’ve seen cost competitiveness and this is just a look

at the countries around the world where we regard these technologies to be the lowest cost competitors and I will of course put the giant caveat out there that for instance the United States is a big country and onshore wind is not the lowest cost technology in every single corner of the country but it is in a lot of parts of the country now uh and the same is true in canada and as you can see some of the nordic countries in brazil in particular has outstanding wind resources so when you look at it on a levelized cost basis you can see that these technologies now are the lowest cost solar as well as you can see in china in india and us in australia so importantly these technologies are truly cost competitive without subsidy next slide please so of course the inevitable question and concern and complaint that is often raised about renewables is well you know what happens when the wind isn’t blowing or the sun isn’t shining how do you make sure that you can keep the lights on and that that’s a fair fair question the way in which our power system has been built is around the concept of base load power that’s power that you can essentially flick on when you need it and flick off when you don’t and that’s not the case of wind and solar we are at the at the mercy of mother nature but what can get you around that potentially are batteries obviously if you can store the energy that you need for four or maybe even eight hours at a time you can have it dispatch when uh you know when consumers need it and the good news here is that that this is a similar chart to the one that I showed earlier for wind and solar which is that battery costs have also dropped by about 90 percent since to that since 2010 we do a survey of battery producers every year and we’ve seen this very sharp decline it is a similar story to solar in the sense that it’s the massive scale-up of manufacturing and economies of scale that’s done this but we’re also seeing some new technologies come along next slide please one other kind of key driver that we’ve seen which is worth noting um has been the leadership from corporations um increasingly and this is a larger conversation but increasingly one of the interesting evolutions in the power market has been that customers i would argue have become more empowered as a result of a lot of technological changes and what we’re seeing more and more is demand from large corporates who want to buy renewable energy and so uh last year we saw a record of about 20 gigawatts of contracts signed that’s what a corporate ppa is it’s a power purchase agreement um and it set another record over 2018 and 2017 it’s a broad base of companies that now are increasingly signing these kinds of contracts originally it was technology companies that seemed to get it and be interested in it but now we even occasionally see oil companies that are signing contracts to have their operations in some cases powered by renewables as well so this is a corporate-led phenomenon and it is global although the united states is really the leader in this area next slide please and while talking about the us i do think it’s worth mentioning just how dramatic the change has been here uh over the last decade or so if you look really not that long ago back to where we got our electricity cut from back in 2005 i was about 50 percent of our power came from coal um today that’s in 2019 it was less than a quarter of our power came from coal meanwhile that top bar on the left that you can see those blue bars you can see renewable generation essentially has doubled over that period of time you can see that nuclear power interestingly stayed about the same over the period and gas has really really dramatically grown has also basically doubled over that period also so a rapid shift away from coal towards gas and renewables and the result has been much slower co2 emissions i’ll talk about that in just a second but one other thing i want to say about these charts before moving on is just that um you know the us economy has been growing we’ll put aside this year obviously but it has been growing albeit unspectacularly had been over the prior 10 years but if you look at how much actual electricity we consume it really hasn’t been growing almost at all it’s been pretty flat and that’s because in addition to this sort of decarbonization phenomenon that we’re seeing we’re also seeing that people are making better use of the electricity that comes into their house through more efficient devices like energy star devices through monitoring of their consumption through digital thermostats and then on the corporate side they’re even more

active about wanting to be smart about their electricity consumption to save costs so you know we are actually not atypical from other wealthy economies and that we can grow our economy without adding electricity consumption in a major way next slide please now the result though of all this change over the last 10 years has that been from a co2 emissions perspective the u.s has seen a transformation in that it was the power sector which is that red line you see there that was the clear major culprit when it came to co2 emissions in the u.s but thanks to really the last five years power is no longer the number one source of co2 missions in the us uh in fact it’s now the transportation sector which is the green line and you can see has not actually moved very much over the last number of years so that really presents a new challenge and i’m going to turn and talk about transportation in just a second but you can see those other sectors also haven’t really moved particularly much either and they also are challenged from a decarbonization perspective next slide please one last point and then i’ll stop talking about electricity specifically but um every year we at bloomberg nef do a long-term forecast looking out to 2050 we call it the new energy outlook or neo and this is just our long-term view of where we think things are going uh overall and it’s actually a fairly simple methodology in the sense that we just take the technologies and the costs as we see them today and as we’ve seen them declining so far and we look forward and we say okay if these trends continue in ways that we think that they will how will things continue to be transformed we do this globally but i did want to just show the u.s picture and you can see that our view is that that black uh chunk at the bottom which sorry is not actually listed in the key but that black bed at the bottom is coal and you can see that coal has already been on the decline in terms of the number of terawatt hours that it it contributes up to 2020 we think that that continues to go down it does not get to zero i would say by 2050 but it does go down quite dramatically the next layer in the cake up is the gray bit which is natural gas and again sorry that it’s not on the legend here but but gas has been playing a greater role and we think we’ll continue to play a big role and potentially a bit over half of generation by 2050 will come from the u.s natural gas nuclear which is a zero carbon source of generation is the red bit above and we think that that will actually go down a bit as older nuclear plants retire and then up on top the top layers of the cake are solar and wind which we do project to grow very dramatically over that time one thing just before moving off this is to note that you know we make no assumptions about policies um so for instance um you know um vice president former vice president biden yesterday announced his plan to want to get to a zero carbon electricity world by 2035 we don’t make any assumptions about any policies that are not on the books at the moment so this could look very different frankly with very different set of policies but if you don’t make major policy changes we are looking at a world in which gas plays a continually growing role renewables do as well coal almost disappears but not quite next slide please really quickly and then because i’m in the interest of time i want to move quick on these next couple slides but um uh one thing looking on the global basis you know we try and we paint similar pictures or do you know for different countries like the one i just showed you for the us and one thing i would note is that you know we are quite bullish about renewable energy um and yet um if you look at the world that we forecast um and that’s our neo new energy outlook 2019 that blue line you can see that if you look over the next 10 years or so and you want to try and get to a so-called two degree trajectory that is to keep global warming in check at a two degree rate we’re sort of on doing okay over the next 10 years the problem is what happens thereafter and that you really do need to reduce global power sector emissions more much more than we would project will happen by pure economics which again gets to the issue around the need for policy next slide please and this on this next one you can just dwell for just a very quick moment um on the next slide basically it just shows how much wider the gap is if you want to get it so that the global temperature only rises by 1.5 degrees on average and there’s a much wider gap there and again you’ve got a real challenge ahead okay so i’m going to

talk now for a few minutes about transportation because if you go back to that pie that i showed like i said electricity was one segment where we we’ve seen real progress on decarbonization and and really substantial transformation and then the next one is trans transportation and i think we’re really a really really interesting and important part of a point in the development of electric transportation so first just a tiny bit of context which is this is up through the end of last year total car sales in the world actually peaked a couple years ago china’s car sales which has been what’s driving the market that bottom piece you can see actually declined a bit last year now you can only imagine what this year’s chart’s going to look like it’s probably going to have a very sharp divot and then we’ll see how it looks through the rest of the year but in the grand scheme of things total car sales actually appear to have peaked so that that’s I think an important piece of context as we think about the climate challenge now on the next slide if you would you can see that to date we’ve now got about seven million electric vehicles on the road worldwide um I think people a lot of people don’t know this but that China uh which is that bottom uh chunk in red that you see there accounts for a bit under half but a very substantial portion of all the electric uh vehicles that are on the roads today um the other thing that i think people don’t recognize is that there’s about half a million electric buses on roads around the world um at the moment um almost all of those and that’s that’s that last that’s that top chunk um uh that you see for 2019 the gray bar or the gray block there um most of that’s in china also um so there china is well ahead of the rest of the world on electrifying its fleet of course we hear stories about scandinavia and elsewhere where people are buying teslas and that’s cool and you know it’s exciting but um but in reality when you’re talking about sort of affordable cars and cars that are in compliance with regulation cars that sort of the more average person can buy china has been has really been a remarkable market for that and also for public transportation next slide please um and the i think the good news from a decarbonization perspective is that the auto makers seem to recognize that electrification is the future um i i would say that’s sort of the altruistic view is that they want to make a transformation uh to reduce emissions the less altruistic view is that some of them have gotten busted for cheating on emissions and some of this is paying penance for that and making a switch to try and decarbonize um some of the course is also about just complying with um corporate average fuel economy standards which obviously you guys in california are familiar with given the uh the issues between carb uh and the u.s federal environmental protection agency next slide please now and i won’t dwell too long on this but i i did want to make one important point i showed earlier about how renewables have reached the point where they are cost competitive without subsidies in a lot of parts of the world electric vehicles at this very moment are at such an interesting and critical point in time where in a number of markets they are still on a sticker price basis essentially a little more expensive than buying the equivalent car that is an internal combustion engine car and so we’re not we haven’t quite turned that corner where the consumer is going to walk into the showroom and buy an electric vehicle because it’s the better car and the cheaper car without the benefit of any tax subsidies okay so those yellow lines without walking through each one of these the yellow line that you see there is basically how much it would cost to buy say an average toyota corolla and you can see the higher cost when you add up the blocks of buying an electric vehicle and there are different components to what goes into that vehicle there’s the battery which is in green there’s the powertrain of the vehicle and then there’s the rest of the car which is in blue and what you can see and why we’re optimistic is that the green bars get smaller and smaller smaller and that goes back to the the chart that i showed earlier about the cost of batteries so once battery prices get just a little bit cheaper consumers will be able to buy electric vehicles and they will not be relying on federal tax credits or other things to do it they will do it because it makes economic sense and then I’ll throw one other sort of x factor into this which is that you know consumers as you know when it comes to buying cars are not always entirely rational uh and those of you who have driven an electric car probably and i at night have driven and have one um can speak to the fact that as a product um it’s a it’s a very pleasurable car to drive and you could argue that on sort of qualitative basis there’s going to be reasons that drive consumers towards electric vehicles that have nothing to do with the cost

next slide please so what does that mean in terms of transportation um it takes a long time to turn over an electric excuse me to turn over a vehicle fleet globally you know tens of millions of cars on the road overall so one of the things though that we do is we do do a long-term forecast for electric vehicle adoption and on the left-hand side is just looking at our projection for the percentage of sales that we think will come from either battery electric vehicles or plug-in hydro pro excuse me plug-in hybrid electric vehicles uh up through 2040, and what you can see is that basically um we do think there’ll be a sharp increase in bev and and phev sales um but it still get to about 60 percent by about 2040 there’ll be a lot of reasons why some people someone may still choose to buy an internal combustion engine car including if they live in a rural area or or other factors and then if you look on the right hand side what that means though is that even by 2040 you would still only have about a third of the cars on the road that would be electric cars the rest would still be internal combustion engines which i think is just important to put in context as we think about the long-term demand for for fuels next slide and i won’t dwell too much on this one other than to say that we have also looked at some of the other segments of the market besides cars um and there’s been some major announcements amazon for instance has said that they plan to have a hundred thousand short haul vans on the road uh in in the not too distant future and if you think about light duty commercial vehicles who do a lot of stops and starts maybe don’t travel that many miles during the course of a day there is a real economic argument for converting fleets to electric vehicles and we think that there’ll be a lot of that we’re less positive if you look on the right hand side about heavy-duty commercial vehicles mainly because of the amount of torque and the power that’s required to move tons of freight over long over long distances in fact we think there’s a real opportunity there for natural gas powered vehicles instead which will also be lower emission but not zero emission next slide please i won’t dwell on this too long other than to say that maybe more important than whatever it is that i’m telling you or what bloomberg nef has to say about electric vehicles is how perceptions are changing about around evs um you know several years ago we started putting out our forecast which is those top bunch of lines that you see on the chart bnef 2016 and that projected how much electric vehicle adoption we expected in terms of millions of vehicles through 2040 and you can see we’ve revised it up you know year after year um but more importantly than what we’re doing is if you look at some of the forecasts that have come out from exxon from bp from even opec they themselves are changing what they think is going to be the demand for electric vehicles and of course that goes obviously into their thinking about what the demand will be for their product next slide please and along those lines though i did want to sort of again look at that very question about so if you if the world does become more electric in terms of vehicles what does that mean for demand for oil on the left hand side is where we were in 2019 um and you can see about 42 million barrels per day of demand that was there from the transportation sector from uh from cars and from trucks and from two and three wheelers if the fleet continues to expand over time we think you could add another 25 million barrels per day of demand for oil products that said we also think that there will be fuel economy improvements that will reduce the demand we think there’ll be alternative drive trains and that’s where i’m talking about electric vehicles we also think that shared and autonomous vehicles will also reduce demand so when you get to 2040 you’re looking at demand from transportation though that is about 41 million barrels per day if you think about that in terms of co2 emissions not so great that basically we’ve done a round trip to sort of where we are today and again this is all based on the assumption that we don’t have any new policies to expedite this transition to electric transportation we just move at the speed that i’ve outlined that’s based on economics next slide please before moving quickly i won’t try and go into this next slide in too much detail other than to mention that not all oil companies are created equal when it comes to their approaches around the energy evolution that’s taking place this is just a look at the number of deals that these three oil major companies have done uh in recent years to invest in solar wind biofuels other areas as well

what’s not on this chart um is uh are the u.s oil majors because frankly they have not been as aggressive in terms of the actions that they have taken um to try and invest in these areas uh i think it’s been frankly from a climate perspective it’s encouraging to hear some of the rhetoric that we hear from Shell and from BP about how they envision their opportunity to provide electricity to transportation and not just liquid fuels we definitely hear less of that I would say from U.S companies so these are not not it’s it not all oil companies are the same but i would also note that um uh you know that there’s there’s still a long way for frankly for all of them to go in terms of thinking about what their strategies is going to be their strategies are going to be around the transition next slide please and i’m just pretty conscious of time here so i’m gonna i may zip a little bit through let me skip one or two here but um uh as i mentioned earlier um been touched on very briefly and that going all the way back to that that pie chart that i showed um industrial heat um in the industrial sector overall um is a big part of the climate uh challenge uh these uh these industries that you see here um iron and steel chemical cement aluminum etc they require a lot of heat to manufacture and produce and heat that’s not easily replaced by frankly any of the technologies that are zero carbon and readily available to us today uh and so this does raise the question of if you want to get at that segment of the economy where and how will the transition um come from in the next slide please and one area that’s been frankly talked about a lot has been hydrogen and I won’t go into great detail here other than to say we did a very in-depth uh series of studies last year to look at this because right now you can produce hydrogen to for a variety of purposes and it is used in in various industrial processes but it requires a lot of energy to be produced it’s not zero carbon the question then is can you take advantage of the fact that we now have very inexpensive power that comes from the sun and the wind can you take advantage of that to produce so-called green hydrogen that’s hydrogen that uses zero carbon power to be produced and the short answer is yes you can now but it is not nearly as cheap as it is to produce using fossil fuels and so the question is what’s the point at which you can drive those costs down so that you have viable green h2 that can be used our view is that you start to start to get there around 20 30 but you will need a lot of investment one of their findings from the left-hand chart that you see there is that we also found in our research is that there are so-called hydrolyzers that produce hydrogen that are operating and cheaper to build in china than they are in the west at the moment and so that does give us hope that as you achieve more economies of scale you can dramatically reduce costs but to be clear hydrogen is a is a is getting a lot of attention uh people are writing a lot of stories there’s been some investment in it but a lot needs to go into it for to become truly economically viable uh next slide please i’m just going to touch on this for just a sec to say that um the other aspect of all of this which is taking a step away from the technologies and looking at the money for a second is that you know we’ve seen a real trend towards so-called green uh green bonds and green debts and all kinds of green financial products that take a variety of forms um and um have been growing in popularity and again I’ll just keep moving just in the interest of time next slide please and the other trend that we’ve seen is towards greater uh disclosure from companies um the task force on climate-related financial disclosure which is a mouthful um is a is a coalition that has been encouraging companies to report in greater detail about their carbon footprints and their other forms of esg activities the number of companies that participate in this has grown rather spectacularly since uh 2017 um and what this has meant is that there’s greater reporting about what companies are actually doing this is something that sort of mama Bloomberg you know we’re Bloomberg NEF a division of Bloomberg Bloomberg LP and Mike Bloomberg himself personally has been very involved in trying to encourage companies to disclose this information about about their their footprints but also about the kind of risks that they

face in a changing climate going forward next slide please because let’s actually skip the next slide because it’s just too much to take on but maybe the slide after that um i i feel like i you can’t talk now about energy and i realize that that very much that the calstrs you guys very much have a long-term view on things uh and and basically so much of what i’ve talked about looks out to 2030 um and 2050 even um but uh i’d be remiss if i didn’t say at least one or two things about um the the current crisis that we’re in because it is obviously so uh all-consuming and a few just two quick thoughts from an energy perspective um the first is that um uh in terms of demand for for liquid fuels not surprisingly getting everybody to stay at home um has put a major dent in how much demand that there has been the left-hand chart simply shows implied gasoline demand actually up through just last week the green line at the bottom there is 20 20 and you can see just how dramatically out of line it’s been by really a halving of demand during some months overall for road fuels the right hand chart won’t go through all of them but just looks at levels of congestion and how traffic is frankly here in washington i’m sure there as well in other places hadn’t been an issue for a while so it’s really been the sellers of of liquid fuels that have taken it uh on the chin uh as we’ve gone into this crisis uh next and final slide please um but and sorry that this slide is a little a little complicated but just would just say that the main takeaway here is that not too shockingly um electricity demand has not really been all that different than what we would have expected so the black line here on this chart shows you the actual load or demand for electricity that we’ve seen and then the blue line just above it shows what we would have projected electricity to man would to have been week to week um with a confidence interval around it given that there is uh you know margin for error there um there are a lot of factors that go into our demand for electricity on a day-to-day basis as you guys must know in sacramento on days when the thermometer crosses 100 demand is much higher than it is when it’s down 80 same here in Alexandria where it’s about 90 degrees today so that affects it and so you really have to look at what would have been demand under some kind of normal circumstance and some people have shown charts in which they show this dramatic decline in electricity demand versus last year well that’s not really the point the point is where would it be versus where it should have been in a normal year and frankly it’s not that different and the main reason is because as you might imagine while a number of companies are using a lot less electricity we’re all using a lot more at home i don’t know what your utility bill looks like but you know we’ve been setting records here and so i think that there is an offset there so it’s the utility sector as a business um in some ways you could argue has never looked stronger um even with all this transformation um but i do do think that the covert 19 phenomenon has certainly called into a question um you know the the uh the let’s just put it this way it’s certainly challenging the business model of fossil fuels um anyway my last slide is just simply a reiteration of the main messages that i was trying to make before i will just close by saying that um you know that that first of course thanks for giving me this opportunity but second that um you know we we are very much of the view that you will continue to see major change going forward we’ve tried to start to map some of the cova 19 impacts it of course has made it even more uncertain on a go forward basis but we still think that the fundamentals around decarbonization is going to continue uh and that that’s not something that we’re going to see changing mainly because of economics then the really open question is what kind of policy drivers might come along and change the game so that we can actually get towards the goal of decarbonization uh even faster so with that let me hand it back um to to Chris or to Joy and I’m happy to take questions um great wow ethan thank you very much that was a tremendous amount of information in a short period of time and i i think probably several board members and along with me feel like we could spend a couple of hours chewing through all this information with you um just a lot to digest but i know we’ll we’ll have some questions um so the first question we have up is from the controller betty betty um thank you joy and thank you ethan for the presentation um there’s a lot of information but where you ended the presentation

was really uh what i was interested in and that is you know what are those policy drivers going to be uh and i know there are efforts underway on a number of fronts but aside from maybe looking at um you know stripping the oil industry of subsidies and setting a price on carbon are there others that are you know really promising that could be helpful there yes well good question um i mean there’s a lot of different things um and um you know the price on carbon and i’m here in washington so um you know the question is how live a conversation that is i would say maybe again just a qualitative judgment maybe not that live given that it wasn’t on Joe Biden’s kind of wish list of things that he announced yesterday um but um but I do think that um that you know there are other things you can do we’ve seen um ideas around a uh some form of a national clean energy standard um that would mandate some kind of decarbonization across the country um you know there are certainly in the transportation side the corporate average fuel economy standards as originally promulgated or last promulgated by the obama administration were quite aggressive there’s now they’ve now been watered down those could be reinstated back to where they were that would certainly help push things along and ensure that the auto industry continue to improve uh its efficiency efficiency uh standards around appliances um have made a big difference it’s kind of a sort of less less heralded area that we see focus on um but some of those kind of um nitty gritty in the weeds policies can make a a really big big difference um and that while while i I certainly sympathize with those who are purists and think that a carbon price is the you know the the most efficient way to decarbonize and i i hear that i also feel like here in the real world the the political reality is it can be very challenging to get that done and if you can accomplish many of the same things through a lot of small rules then that’s probably the way to come right right so um you know one of the things that i was happy to use stress and that is um and obviously with the divestment discussions uh really elevating and uh volume uh the idea about um you know how do you really control ongoing demand and you know you laid out in terms of some of the progress that some of the european um companies are making u.s companies a little bit slower but let’s say if we were to divest from those like where does that market share go because we’re not even talking about even some of the the nationally owned companies i mean what like the companies in china saudi arabia others i mean did they play how big of a role do they play in terms of where we need to go it’s a good question of course the giant caveat first is sort of to some degree also is what happens with cobia 19 um there’s some very important short-term factors that have to do with that are going to affect oil demand and oil prices and in turn the the fate of the sort of so-called swing producers which are the u.s shale oil producers and i think all of that is really important to keep an eye on see what happens there in the short run because that will determine to some degree what the longer term price of oil might be so i think that’s something to keep in mind um as i said you know on our view unless there’s major policy change the world is still going to demand a lot of fossil fuels going forward um and so then the question is you know who is going to supply them where are they going to come from um you know interestingly enough the us as a as a market essentially had reached the point where we were no longer a net importer of of oil as of last year which is kind of an amazing um accomplishment in its own in its own right i don’t know where we’ll end up you know once this crazy year is over but um but nonetheless um there was a there was an enormous amount of production that’s come online in the united states and so then the question is you know if you if you don’t want to get it from the us where do you get it the us is not the lowest cost producer in many cases so if you do shut in wells here then you are potentially going to have to buy oil from elsewhere where it will potentially be cheaper um yes but it will also potentially need to be transported here yeah yeah and then my last question is how do you how do you factor in uh i guess the concept of stranded assets into your forecast um so i mean we we we let’s put it this way assets will get straight you know we assume assets start to get stranded at the pace at which economics drives that stranding um for lack of whatever better way to describe it so um you know it will happen in some markets where the price of renewables will undercut existing fossil generation we try and look at it really in two ways so first is what we call tipping point one which is the point at which

renewable power is cheaper than fossil power when you go to add that next incremental megawatt of capacity and that tipping point one we think we’ve already achieved in a number of markets the harder tipping point is the so-called tipping point two and that’s the moment which you basically say oh boy we gotta we’ve got a solar plant and it’s so much cheaper than the existing coal plant that we’re gonna take that coal plant offline and we are not there in a number of countries yet um and we need to get there in particular countries like india and china in order to start stranding those assets but we don’t think that happens there i’ll have to check our exact year but you know probably about 10 years out before you start to get to that second point in countries like that so that’s the point where athletes will start to get more often get stranded okay great um thank you joy thank you ethan this um i think at least for me kind of broadens kind of our orientation around how we look at this industry going forward really appreciate your being here thank you great thank you betty we have a couple more speakers first we’ll go to bill and then to jennifer bill uh thank you ethan and thank you uh joy um ethan i i’m curious uh about the impact of uh transportation uh and you covered surface transportation but not uh air transportation what what is the role how large is that a component of uh of the impact i mean good and as as the emerging nations become more emergent uh they’re going to be traveling more uh you know assuming no pandemic uh you know a lasting pandemic uh what is the impact of air travel that’s a really good question and i wish i knew the exact percentage off the top of my head but transportation is about 14 overall of greenhouse gas emissions i’m gonna guesstimate it’s about two percent that’s from from air travel um uh two percent uh versus the full hundred so it’s an important part um and it’s um and frankly it’s it’s a place where you can make real improvements i don’t know about you but you know at our company they will tell you the exact co2 emissions for your for your flight um and if you look at your the the amount of co2 that your your household um you know your your own footprint is your flights are huge represent a huge percentage of the total so it’s an area where we definitely can make improvements um and i do think that it raises a real um a real concern um going forward as countries do start to do more uh air travel that said uh i do think kovit is really one of those it could be really one of those interesting uh changes um because i don’t know about you but i think for for our business we certainly um hey we’ve we’ve been amazed at how much we can get done without traveling um and b you know i think we’re going to think about whether we needed to travel as much as we did you know before all this struck and i imagine a lot of business is going to have that consideration as well and given that business travel does account for a very large portion of um of the overall amount of travel um you know i think it’s something to keep an eye on so anyway i i don’t mean to play that down in any way i think it is an important concern but if i think about developing countries my thing that keeps me up more at night is how many more people are going to buy you know buying cars well while the number the total number of car sales isn’t going up they’re still you’re still selling whatever number of millions of them each year in india and china but there is an alternative there’s no electric plane yet uh so you know at some point if with the costs come down that’s you know there’s no barrier uh to purchasing the electric car that’s right and a lot and we’re seeing it and in developing countries actually the other alternative that we’re seeing a lot more are electric two and three wheel transportation it’s been growing very quickly thank you ethan sure thank you bill okay uh jennifer thank you thank you ethan for your presentation one question i have is related to some news articles that came out this week about the soaring methane emissions and how um they were saying that it’s putting the climate goals at risk in your opinion what does that mean for investments in green or technology a green or clean or green technology good question and i wish i’d seen the article was it do your coffee is regarding methane emissions from oil and gas production or from cattle or from some cattle from yeah from cattle um look it’s a it’s a major it is a major issue i mean we we as a firm

have frankly um just started to look at agriculture in a in a serious way um you know our our heritage is around um electricity originally and then transportation and i would say that you know it’s very interesting obviously as least developed countries develop more there’s it creates greater demand for meat and we’ve seen that in non-oecd countries however in developed countries it’s interesting to see the greater popularity of these meat alternatives that has been growing pretty quickly and of course if we have a major economic downturn that also cuts into people’s ability to to buy red meat i think we’re already seeing some of that as well so i think those are some mitigating factors but nonetheless like uh you know methane is an issue is a is a major one there has been some um efforts around uh so-called renewable natural gas um which uses methane generated from biodigesters on you know from from pig pig waste and other things like that and that is a really interesting area that’s seen more investment from in some cases conventional natural gas companies because they want to find a zero carbon gas that can be used in homes and businesses um as an alternative i think there’s a lot sort of larger bit of politics going on there which is and i think you’ve seen some of this in california which is natural gas has been very much part of the uh to date has been a very much generally part of a positive story of decarbonizing the power sector but i think increasingly people are looking longer term and saying can we be as reliant on gas and truly drive co2 out of the system and of course there’s thousands and thousands of miles of um gas distribution lines and gas that comes into our houses being used in my stove and everything today and is there a lower carbon alternative and of course um you know again rng as it’s called is being is being increasingly looked at although it’s a very small percentage of the overall market rate thank you thank you jennifer i’m chris you had some comments uh just one quick question um and you are i know we’re long on time ethan uh so if i have it right energy electric degeneration is the number one user then transportation but i believe your chart also showed uh agriculture and then obviously industry you mentioned within industry that hydrogen was a potential but when’s that time frame is that 2030 2040 2050 and then the same question on agriculture when can we move away from fossil fuels there good good questions um for for industry and hydrogen and hydrogen you know generally we’re thinking sometime in the 2030s i think it’s what’s um what’s real at earliest um but again um and you know this is an area where it’s you know the other technologies i i kind of show you some nice charts in the you know the so-called learning curve and you know we’ve seen that economies of scale drive this that and the other hydrogen we we this is a you know it’s a real open question about how how quickly you could drive costs down and so you know if we see a major investment um from governments um and others to to try and scale this up we could accelerate it potentially we again we’ve done our best estimates based on what we’ve seen worldwide on that um agriculture um is similar story but you know it’s interesting it’s just it’s um these industry and ag and maybe even ag more than industry um are just hard to um to to to to shift um you know there’s just not uh they’re not as easily um there isn’t just an option that you can swap in one thing for another and make a quick change on it so again and and i’ll confess that on ag it’s something we we’ve not dug in as much on we’re doing a lot more research on right now but again preliminarily it’s a it’s a long-term change it’s a 20 30 20 40 kind of thing great thank you um so we don’t have any other board members in the queue ethan i you know there was a a ton of great information that we heard i think just one of the things that resonated with me was one of your opening remarks which is that um assuming the status quo is the riskiest that of all um you know and a lot of the data that you presented just sort of showed how quickly um the technology is evolving um policy is evolving decision making is evolving um you know i think you’re aware of some of the things that

we’ve been doing and are doing um you know with our committee and looking at a transition to a low-carbon economy so it just you know really reinforces i think a lot of the great work that our staff has been doing and so we appreciate your um you’re being able to share some insight with us we do have two speakers who wanted to just offer a comment on this item so just as a reminder we have um there i think we’re going to post the the time frame for the speakers for this public comment and we have a total of 10 minutes for public comment on this item so i will turn it over to um i think danielle to manage the public comment our first caller is park park go ahead hi thank you so much ethan for your presentation that was really informative uh and and thank you um uh ms yi for your questions about uh divestment i just wanted to see if you could comment on a report that was put out on july 9th by the center for international environmental law and it’s titled debt driven dividends and asset fire sales latest signs of oil and gas industry decline and they’re just two quotes from that i wanted to share fiduciaries have a duty to reevaluate the soundness of continued investments in a sector in long-term decline and policymakers have a duty not to pour public funds into companies that are both economically unstable and environmentally destructive the longer pension funds stay invested in fossil fuels despite stark warning signs about financial precarity and climate exposure the more fiduciary risks accrue so I was just hoping you could comment on the kind of fiduciary risk that exists for uh choosing a strategy of engagement with the fossil fuel industry thank you so much um Danielle it’s Joy I think I just I want to interject here park we appreciate your comments I think I know that there are some rules that we have as a board around how we manage public comment and you know before we move forward i guess i just wondered if i don’t i think brian bartow our general counsel is on or roslyn if you could just advise um advise you know to make sure that we’re handling the situation um correctly or appropriately in terms of a of a question from a member of the public all right enjoy this brian um appreciate hi i appreciate the question i did hear the comment i think one of the things to keep in mind is um although i think uh the gentleman’s name was park i think though he asked a question and a response it’s not on your agenda the give and take and the issue is not on your agenda so really the role of the board at this point or the committee at this point is to take and receive the comment and then determine later if it results in uh additional information or another item that the committee wants to bring forward in another meeting okay okay thank you brian i i i’m glad you were on i wanted to make sure that we handled that um appropriately so thank you um so danielle i think we’ll we’ll go to the second speaker our last caller is vanessa Vanessa go ahead hi hi can you hear me yes we can hear you great thank you um I very much appreciated Mr.Zindler’s presentation and I just had a few comments about some of the slides so one of your early slides showed U.S generation power generation and predictions but those are only for the united states I’m curious about why it was only the united states it was included the international numbers are quite different and i would encourage the board to ask him for international power generation numbers and predictions as well i i also take issue with the oil majors diverse approaches to clean energy slide because what that is is a super zoomed in look at their total expenses and there’s a recent study that shows it’s the five-year plan as the study by rice dot energy in Norway shows that the five-year plan for oil majors is investing 160 billion in oil and gas projects versus 17 billion in renewables so those those comparisons about which it’s sort of like comparing who’s the bigger midget when it comes to renewable investment

and i would even add that the majority of that 17 billion is all just from one norwegian company so on average it’s about one and a half percent i believe of uh capital expenditures from the oil and gas majors is actually being invested in renewables um so i think that slides a little bit misleading and um i and lastly the ev information it would be great also if you could provide the board mr zindler with information on the cost of ownership because as you mentioned the upfront cost is almost at parity with ice cars but it is substantially lower when it comes to ownership maintenance and fueling and that is as the cars get older and people start to buy older vehicles that is going to also change the financial calculus for electrification and transportation lastly i just want to point out that stirs is such a large entity you have so much money and you are such a big player in the international markets that your fiduciary duty to protect the investments of your members at this point given the climate cliff that we are heading towards requires you to exert your power in driving these markets rather than following them so when you see this data I really hope that you think how can we help bend that curve how can we help flatten that curve because quite frankly the picture of that U.S. generation prediction assuming no policy changes is a picture of apocalypse that is a picture that ensures that your members who are set to retire in 2040 or 2050 won’t be able to because the world will be on fire thank you for your time i appreciate you covering this issue thank you for your comment that concludes the public comments great thanks very much samantha and thank you to our to our public commenters i think as as we all always do you know any comments that are provided to the board either verbally at the meeting or in writing our staff takes a look at and considers those issues and reports back to the board so we’ll do so with uh some of the comments and questions that were posed here as well i think we don’t have any other questions for you ethan thank you very much thank you for spending as much time with us as you did today like i said lots of information i think for us to continue to consider and i hope that you know we’ll be able to continue to call on you if we have other questions or need more information thank you thank you can i cut before i go can i just offer to be available to answer those questions to the people who are asking them to me um if now is not the appropriate time i’m happy to take it offline and if you have their contact information i’m happy to follow up with them i think what we can do is um we we do have their information provided to us and so what we can do is offline ethan follow up have a member of our staff follow up with you and figure out how to provide information back to them or provide it to the whole committee if that’s appropriate so we’ll follow up with you and do that i would certainly welcome the chance to answer so that would be great thank you okay thank you okay um so that takes us to item 15 which is just a review of information requests um roslyn can you cover off i think we had a couple during the course of the day i’m sure so um with respect to item number 11 mr kiwi has asked makita follow up offline on some of the costs related to the sis um portfolio and then i have this last one that you just discussed um having the staff follow up um with regarding the public comment and responses to by ethan to the public comment questions okay i think i had written down also um there may have been a couple of other and i think gail is not on so um jennifer we may need to follow up with you and gail but i think that there were there may be a couple of questions that gail also had um regarding sorry i’m trying to make sense of my notes here um i don’t know if it was related to the investment business plans or this is the cis investment policy um but I thought there might have been one or two follow-up items that she had as well um 11 uh 11b um it was either on 10 or 11a okay you know we can um maybe what we can do is we can follow up okay we’ll follow up offline

okay thank you okay um item 16 is um is the draft agenda for our next committee meeting um chris anything that you’d like to highlight for the draft agenda i’m sorry hang on one i’m sorry chris hold on one second um i didn’t realize that a couple of board members in the queue so um harry and then um betty um and this may be going back to the review of information requests yes thanks madam chair thanks roslyn for capturing that uh but no need for the for the staff to follow up directly with the full board I just meant to um okay I’ll contact Mika and speak ask her my specific questions it wasn’t meant for an information item for the full committee okay thank you thank you for capturing it though thanks okay thanks joy thanks troy thank you harry okay and betty i’m i’m wondering if what i thought was gail was actually a request from you so um yeah it may be and it was just really to add to the discussion when this item comes back in september um just a deeper dive about the relationship of the um i guess the uh integration work of the other um uh portfolio managers as compared to what this is doing just so there’s not kind of this uh creep to put it all on on with this team okay okay great thank you perfect okay um so chris the draft agenda for the next meeting yeah thank you Joy um the bulk of that meeting september and march are always big books for you because that is our seminar performance review this is going to be the june 30 numbers so it will be a very detailed book electronically it’s just as light as anything else we’ll spend most of that meeting going through the semi-annual performance i do have a block of time on there for brian and travis to talk about the bnf slides so what i think i’ll do is work with you joy to see if we want to expand that to include the human capital management and give cis an opportunity to to maybe run through some of their engagement success questions and then as well as review some of the the bnf slides that were requested um the other thing i would highlight is uh it looks like we’re putting our final numbers together uh it looks like we’re going to be 3.9 net 3.88 uh uh three-year number is going to be 6.5 um so less than seven uh and I’ll break the news many probably the two board members on the CalPERS board might know but CalPERS announced they’re 4-7 so they got us this year we still have them over 10 and i think 20 which counts but um as I said I actually do expect most of the peers to become I have seen two and a half and I’ve seen three so um but I think we’ll see wide dispersion in the returns among peers so uh we did beat our benchmarks uh at least initially that’s the indication which is a good thing and on three years also beat the benchmarks which is critical for us so we’ll put the press release together i don’t know if that’s going out this week or next but we’ll get the final numbers that will all be presented in your board book in september and we’ll have makita rc elko go into details throughout that performance and so that that really will be the meeting and the key discussion um and we’ll continue information and updates on the low-carbon transition great thank you chris um anyone have any questions for chris about the draft agenda okay um i don’t think we have any other members of the public um to speak at this point so i think that that concludes our open session for today um i think logistically everybody is supposed to exit this meeting because we have a different zoom meeting conference space to enter for a closed session um so it’s it’s um 147 now um you know we can we can reconvene there in five minutes or um you know we are running a little bit over at this point or we can start up at two o’clock if people need a few minutes to stretch in between i’m seeing yeses okay so um please try to log in to the closed session um a few minutes early so that we can try to start on time right at two o’clock okay i’ll see people um in closed session that too thank you