Large Asset Owners Urge Russell 1000 to Take Heed of ESG Risks

In a letter signed by asset owners collectively managing $1 trillion, the companies of the Russell 1000 index were called on to implement environmental, social and governance (ESG) concerns into their business models.

The two largest American public pension plans, California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS), signed the letter along with the Board of Pensions of the Presbyterian Church and several dozen others.

“Environmental and social sustainability issues can no longer be considered off-balance-sheet issues,” the letter said. “Rather they are material, financial issues posing both risks and opportunities to the long-term success of corporations.”

ESG investing, met originally with intense skepticism by the bulk of American asset owners, is beginning to gain traction.

CalPERS and CalSTRS have been making moves towards ESG investing for some time. “CalPERS is a long-term investor, and our primary objective is attractive, sustainable, risk-adjusted investment returns” CalPERS Information Officer Wayne Davis told aiCIO. “We’ve long advocated the reporting of environmental risks in engagements with portfolio companies and federal regulators.”

In May, CalSTRS CIO Christopher Ailman outlined to aiCIO his plan’s new shift toward ESG investing. The letter follows up on CalPERS’ announcement in May that the plan would implement a new ESG campaign this summer.

The letter advised the Russell 1000 companies to utilize a tool developed by Ceres called the 21st Century Corporation: Ceres Roadmap for Sustainability in order to make their business models ESG conscious.

“We’ve seen enough hidden financial risks with globally damaging economic results in recent years,” Mindy Lubber, Ceres president, said in the statement. “The collapse of financial markets, the BP oil spill, the Massey coal mine disaster and other mishaps make clear it’s time that companies operate with a clear view of all their risks and costs — but also the tremendous opportunities open to those businesses across all sectors who compete by developing solutions to environmental and social issues.”