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CalPERS Readies New Responsible Investing Plan

Staff of the California Public Employees Retirement System will present a proposal to incorporate environmental, social and corporate governance concerns – so-called ESG issues – across the Sacramento-based plan's entire $232.2 billion investment pool at the fund’s August 15 Investment Committee meeting. It is a proposal that, if approved, will herald a new era for the pension plan, and US public funds generally.

  • Imogen Rose-Smith

Staff of the California Public Employees Retirement System will present a proposal to incorporate environmental, social and corporate governance concerns – so-called ESG issues – across the Sacramento-based plan’s entire $232.2 billion investment pool at the fund’s August 15 Investment Committee meeting. It is a proposal that, if approved, will herald a new era for the pension plan, and US public funds generally.

CalPERS has long had a commitment to these matters, which it has practiced in a variety of ways - from how it votes on company proxies to making investments in funds focused on green investing . But over the past year CalPERS senior portfolio manager for global equities Anne Simpson, who spearheads CalPERS’ ESG initiatives , and her team have been looking at how ESG factors can play a more central role in the investment process. The proposal is the culmination of that effort.

“This is an ambitious program that CalPERS is considering, we want to get practical,” says Simpson. CalPERS is looking at three areas in particular: climate change, human rights and alignment of interests between investors and what they own.  At the meeting, heads of asset classes, including those overseeing equity, real estate and fixed income, will present what the ESG focus of that asset class will be for the next three years and how its approach will be coordinated with the rest of the fund. CalPERS views consideration of ESG factors to be crucial to risk management and an important part of their fiduciary responsibility as investors. “It we consider that environmental, social and governance factors can have an impact on risk and return, then fiduciary duty compels us to consider this whenever, however and wherever we allocate capital,” argues Simpson. 

Simpson outlined key elements of the CalPERS plan at the second annual RFK Compass Conference, organized by the Robert F Kennedy Center For Justice & Human Rights. The conference, held in late June in Hyannis Port explored fiduciary responsibility and the obligations investors have to look at issues such as human rights, environmental impact, corporate governance and commitments to diversity.

The group of around 180 attendees at Compass this year. Investment fiduciaries, including officials from sovereign wealth funds, public and private pension plans, foundations and endowments as well as family offices and investment consultants, asset managers, including hedge fund and private equity executives, government officials and policy experts as well as many members of the Kennedy family. The president of the Robert F. Kennedy Center Kerry Kennedy, daughter of Ethyl Kennedy and the late Robert F Kennedy, was a key organizer of the conference. Her brothers Robert Kennedy Jr. and Christopher Kennedy and cousin Edward Kennedy Jr. were also all speakers during the three-day event.

“Compass provides a forum for senior-level fiduciaries to come together and talk about the increasingly complex array of risks they must manage,” says Betsy Zeidman Director of the RFK Compass Program. “It is not just a conference, it is a program” that runs throughout the year. Part of RFK’s objective is to provide long-term investors with tools that help them address the increasingly complex array of risks they must manage. These can include strategies to better integrate ESG factors into their portfolio management, utilizing or customizing stainability research, real estate investing or proxy voting.

Making ESG considerations part of the overall portfolio approach is just part of CalPERS’ ESG initiative. The pension plan has been reaching out to other large funds, those in the $200 billion or more range, to talk about how they can collaborate and coordinate efforts. “We want to really move the needle,” says Simpson. One example -  diversity on corporate boards. Long been a touchstone of socially responsible investing as studies show that a diverse board can result in better-run companies and can be valuable to share holders. CalPERS and the $154.6 billion California State Teachers Retirement System teamed up last year to put together a database of qualified women and minority executives to be potential board members. That database is due to launch this month.