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SUSTAINABLE INVESTMENT
Please click on the above photo to access CalPERS Towards Sustainable Investment report.
CalPERS has a long standing commitment to sustainable investment and a proud history of leadership and innovation in the field. Acting as fiduciaries first and foremost, the goal of the CalPERS investment program is to achieve the highest possible long-term, sustainable, risk-adjusted returns consistent with fiduciary duty. As a significant institutional investor with a long-term investment time horizon, sustainable investment means taking account of environmental, social and governance factors - known as ESG - across all our day-to-day investment business. Issues such as climate change, human rights, Board quality, alignment of interests on shareowner rights and executive compensation practices create material risks and opportunities for our investment portfolio, and we have a financial duty to manage these issues.
In 2011, the CalPERS Board approved the adoption of a Total Fund process for integrating ESG issues as a strategic priority. To facilitate and implement this initiative a Cross-Asset Class working group was established. This group is led by the Global Governance team which now works across all asset classes to ensure CalPERS investments are as sustainable as possible within the boundaries of fiduciary duty. Over the coming year the Cross-Asset Class working group will focus on implementing the following projects:
Priorities - Developing Total Fund Principles on Sustainability
Our focus is on reducing and rationalizing the list of more than 100 initiatives on ESG issues that affect CalPERS across the total fund, in line with our strategic themes (see Implementation Framework). To achieve this, we will establish a set of Total Fund Principles on Sustainability and an agreed list of ESG initiatives based on their outcomes, their applicability to our fiduciary duty, capacity to deliver and impact.
Performance - Reviewing of Evidence
There remains a global lack of consensus on the evidence for how ESG factors influence financial performance. Our own discussions on this also have highlighted the need for clarity on the definition of sustainability and its impact on investment risk and return across each asset class. We are undertaking research to assess how sustainability issues impact all our investments, from commodities to currencies, and will review the evidence. With this knowledge, we will be better able to define what is relevant and what best aligns with our core values. This will enable us to address which specific tools and metrics each asset class needs to consider in order to fully implement the total fund strategy.
Procurement - Setting Manager "Expectations Document"
CalPERS largely uses internal managers for its public asset classes and external managers for its private assets. Public Equity has piloted a manager questionnaire on ESG and is working to include the responses in the qualitative assessment of manager skill. This concept will be rolled out across the other asset classes to establish a core set of ESG questions to be included in manager appraisals and tailored as needed for each area of our investment strategy. These questions will address two aspects of the potential manager's capacity: their institutional policy and practices on ESG and their investment policy and practices on ESG, if any. The result of this work will be a CalPERS Expectations Document on sustainable investment for both internal and external managers.