CalPERS Embraces ESG Initiative

(May 13, 2011) — The California Public Employees’ Retirement System (CalPERS) is aiming to implement a new environmental, social, governance (ESG) campaign this summer in partnership with think tank Ceres.

The nation’s largest public pension fund aims to present its first annual responsible investment report to the board in September, providing details on how CalPERS can better promote ESG initiatives.

“Two dozen top executives from Fortune 500s, organized labor, foundations, investment firms and pension funds discussed the urgency of the challenges before us and what we could do collectively and individually to catalyze global-scale action,” Anne Stausboll, Chief Executive Officer of CalPERS, said in a statement.

As outlined on CalPERS’ website, Stausboll’s noted that the main commitments to implement the “CalPERS/Ceres vision” include the following:

Complete a process by August for integrating ESG actions into investment decision-making in a uniform way across all five CalPERS asset classes – public and private equity, real estate, fixed-income, and inflation-linked commodities, infrastructure, forestland and bonds. Integrate the Ceres Roadmap for Sustainability into CalPERS corporate governance engagements with public companies. Collaborate with the California State Teachers’ Retirement System (CalSTRS) and other signatories of the Investor Network on Climate Risk (INCR) to encourage Russell 1000 companies to address environmental sustainability issues.

Already, CalPERS has a large amount of ESG investments, which include $1.5 billion in private equity clean technology and more than $500 million in an internally-managed public stocks environmental index fund.

Last year, following the fund’s decision to pour $500 million into ‘green’ companies, focusing on top performers that have improved share value and have also been environmentally conscious, George Diehr, CalPERS investment committee chairman, said in a statement: “This new index has kept pace with non-environmental investments in recent years, and has outperformed our external environmental managers who have focused solely on excluding polluting companies from their portfolios.” CalPERS Board President Rob Feckner added that while the fund historically invested in external managers whose funds screen out the “worst offending” public companies, the fund’s green initiative — which relies on internal management — is a more robust and quantitative strategy.

To be included in the portfolio, the fund asserted in November that companies must derive a material portion of their revenues from low-carbon energy production, such as wind, solar, biofuels and other alternative energy; water, waste and pollution control; energy efficiency and management including building insulation, fuel cells and energy storage; and carbon trading and other capital deployment and financial products.