We encourage our external managers, companies, and policy makers to be environmentally responsible. This means making wise use of scarce resources, considering impacts, and addressing systemic risks such as climate change. To support this, we adopted a set of ten Investment Beliefs in September 2013, which weave the sustainability theme throughout. The Beliefs guide our decision making, facilitate the management of our complex portfolio, and enhance consistency.
The Investment Beliefs are the framework for how we manage our investments and help us determine our priorities, such as:
- Asking the world's largest energy companies to look at their environmental risk assumptions
- Making sure the Boards of companies we invest in are paying close attention to the risks and opportunities of climate change
- Working with leaders across the globe at the UN Climate Summit to create an agreement that aims to protect us from the effects of climate change
Learn more about our efforts in the sections below.
Ceres is a nonprofit organization that leads a national coalition of investors (INCR), environmental organizations, and other public interest groups that work with companies to address sustainability challenges such as global climate change and water scarcity. CalPERS joined Ceres in 2005, and today CalPERS CEO, Anne Stausboll, co-chairs the Ceres Board with CalSTRS CEO, Jack Ehnes.
- In 2012, Ceres launched its 2012 Investor Action Plan on Climate Change Risks & Opportunities. We helped draft this action plan, which explains our commitment to address the opportunities and risks posed by climate change. The action plan calls for effective policies on climate change and clean energy, improved regulation, and transparent reporting.
- Since 2005, CalPERS has worked with this group to engage companies and state and federal legislatures. We also helped write guidance documents on climate risk and comment letters to policy makers.
In September 2014, CalPERS became a signatory to the Global Investor Statement on Climate Change. The statement was prepared by the:
- Asia Investor Group on Climate Change (AIGCC)
- Ceres-led Investor Network on Climate Risk (INCR)
- Institutional Investor Group on Climate Change (IIGCC)
- Investor Group on Climate Change (IGCC)
- Principles for Responsible Investment (PRI)
- UN Environment Program (UNEP) - Finance Initiative
The statement was signed by 365 investors from North America, Europe, Asia, Australia, Latin America, and Africa with collective assets totaling $24 trillion.
The statement recognizes it will take significant financial support from investors to move toward a low-carbon economy and sets out the contribution that we as investors can make to increasing low-carbon and climate-resilient investments. It offers practical proposals on how our contribution may be accelerated and increased through appropriate government action.
In 2010, CalPERS partnered with 13 investors from around the world in a study, coordinated by Mercer Consulting, to consider climate change factors in strategic asset allocation. The study analyzed the potential financial impacts of climate change on the portfolios of pension funds such as CalPERS using a series of four climate change scenarios playing out to 2030.
CalPERS played a key role in a national effort to seek federal regulations to address climate change. In 2007, Ceres and the Investor Network on Climate Risk (INCR) launched the "Call to Action" campaign. The goal of the campaign was to highlight the risks investors and businesses face when there are no policies on climate change.
In 2010, the U.S. Securities and Exchange Commission issued an interpretive guidance, which gives companies information on how to apply disclosure requirements to the evolving challenges posed by climate change.
In 2013, we assembled the Cross Asset Class Team on Sustainable Investment. Their focus is to work together to support the integration of ESG risk and opportunity considerations into our investment processes. The Cross Asset Class Team is a resource for the entire Investment Office. Goals for the team include:
ESG Manager Expectations
- These will be asset class specific and address flexible practices for integrating sustainability considerations, such as the impact of climate change on companies and portfolios, throughout the life cycle of the relationship with internal and external managers from selection to contracting and then monitoring.
- Where possible, common core practices and considerations will be established across all asset classes.
- In 2014, CalPERS signed the Montreal Carbon Pledge, committing to measure and publicly disclose the carbon footprint of its investment portfolio starting with publicly traded equities by December 2015.
- The pledge was coordinated by the United Nations-supported Principles for Responsible Investment (PRI), which CalPERS continues to be an active and thought-leading signatory of.
We want companies we invest in to have a healthy, productive, and motivated workforce. Company employees play an important role in how wealth is created. This is why we care about labor practices and health and safety standards. We have seen in the past that when companies don't consider the wellbeing of their employees, they risk potential litigation, their reputation, and their ability to operate.
In addition, we:
- Address social issues through our proxy votes and running shareowner campaigns
- Engage with companies directly on a number of social issues, including fair labor practices in supply chains, health and safety, and human rights
- Identify the issues which affect global investors like CalPERS
- Investigate the tools, metrics, and best practices for analyzing, applying, and measuring social issues in a way that's relevant to achieving risk-adjusted returns
Social issues are also a large focus in our work with emerging markets. Our Investment Policy for Responsible Contractor Program (PDF) in real estate and infrastructure is a key measure in this area, as is our work on diversity.
We believe strengthening governance will ensure our interests are aligned across the portfolio. There are three components to our work:
- Company engagement
- External managers and vehicles
- Financial market reform
In practice, this means we need to look at how we procure and manage our investment service providers to ensure they share our values when it comes to material issues such as transparency, diversity, and long-term environmental planning. Beyond this, we also need to examine the governance structures of companies and other securities we invest in to see if their interests align with ours. This has spurred a number of efforts, such as our work on majority voting, "say on pay," and the Focus List Program.
Strong shareowner rights are often correlated with investment performance. Effective and accountable corporate governance is often an indicator of management quality, and we use it to discover whether sustainability is embedded into a company's practices. For us, corporate governance is a precursor to all our work on social, environmental, and other issues.
In addition, CalPERS encourages and supports global market reform to protect investor interests through legislative, regulatory, securities exchange, and investor forums. We have established a Financial Markets reform work stream that is responsible for CalPERS analysis and advocacy for market-wide reform.