CalSTRS CIO Proposes Rebranding Corporate Governance Unit

Chris Ailman calls for new name that better reflects ESG focus.

The California State Teachers’ Retirement System (CalSTRS) has been one of the most active US public pension systems in engaging corporations on their environmental, social, and governance (ESG) policies, and a proposed rebranding aims to reflect that message more clearly.

Chief Investment Officer Christopher Ailman is proposing that the name of the “corporate governance unit” be changed to the “sustainable investment and stewardship strategies group.”

Ailman has asked the CalSTRS investment committee to weigh in on the proposed change and the committee is slated to discuss the matter at its Jan. 30 meeting.

“A new image would incorporate the team’s broader concentration on all ESG issues that may impact long-term value and concern the membership,” Ailman said in agenda material for the Jan. 30 meeting.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

The changes at the $214.9 billion pension plan come as CalSTRS brings on a new leader for the unit. Anne Sheehan retired at the end of March 2018 from her spot directing the corporate governance unit, a position she held for 10 years as its first director.

In October, CalSTRS announced that Kirsty Jenkinson has been hired as the director of corporate governance. Jenkinson comes to CalSTRS from Wespath Benefits and Investments in Illinois.

Ailman said in the agenda material that the change in leadership presents an “ideal opportunity to rebrand and reframe the scope of the unit.”

The CIO notes that the corporate governance unit has evolved over the years to include all aspects of ESG in engaging with companies.

“A new brand image also implies a more proactive, action-orientated program focused on long-term sustainability across all of the portfolio, rather than a single topic descriptor,” he details in the agenda material.

CalSTRS is heavily invested in the stock market, and its global equity portfolio was listed at $105.5 billion as of Dec. 31. Its ownership stake in thousands of companies gives the pension plan a large license to challenge companies in its portfolio on ESG issues.

Both CalSTRS and the larger California Public Employees’ Retirement System (CalPERS) were mandated in the mid-1980s by members of the California State Legislature to develop a corporate governance program to protect shareholders’ rights.

CalPERS received worldwide publicity after it took to shaming companies publicly that had poor corporate governance or had poor financial results. In contrast, CalSTRS put its focus on talking to the corporations privately.

Both pension plans expanded their corporate governance focus over time to sustainability issues at companies in their portfolio as well as social issues, such as the pay ratio between the CEO and lower-level employees.

Ailman in the agenda material credits Sheehan with helping CalSTRS move forward.

“During her tenure, CalSTRS moved out from the shadows of the CalPERS program to gain status as a global leader in governance,” he said.

CalPERS also stopped the annual practice of shaming companies publicly, taking the CalSTRS approach of quiet engagement.

Ailman said since 2008, CalSTRS has had a comprehensive ESG policy, an outgrowth of corporate efforts that were once primarily focused on exclusions of companies from the CalSTRS portfolio or divestments.

CalSTRS is the second-largest US pension plan behind CalPERS, which has almost $350 billion in assets.  CalSTRS is also the largest educators’ pension plan in the world.

Tags: , , , ,

«