Why ESG Factors Are Becoming More Important at CalPERS

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Earlier this summer, Pension360 covered the increasing role of ESG factors in CalPERS’ manager selection and evaluation.

All of the pension fund’s outside managers will have to articulate how ESG factors figure into their investment strategies; further, ESG will play a bigger role in hiring of new managers as well as evaluation of current managers.

Last week, Investments and Pensions Europe sat down with senior portfolio manager for global equity, CalPERS’ senior portfolio manager for global equity. Simpson talked about the rise of ESG at the pension fund:

“We’re reframing the ESG debate as an investment issue,” Simpson said. “For us, it’s the natural next step from adopting investment beliefs a couple of years ago. We’re shifting from thinking about this as ‘ESG issues,’ and thinking about what is required for our funds to be sustainable over the 70-year liability horizon we’ve got.”

Two of the investment beliefs “set the stage” for what CalPERS is doing.

“One is that long-term value creation comes from the management of three forms of capital – financial capital, human capital and also physical capital,” Simpson said.

“We’ve never been terribly fond of the ESG acronym. By reframing this as sustainable investment around these three forms of capital, we’ve given an economic framing of the issue to use in explaining what it is we want our managers to be paying attention to when they’re deploying capital.”

The second CalPERS investment belief is the statement that “risk is multifaceted for an investor like CalPERS, because of our size, the longevity of our liabilities and so forth”.

“Risk for us isn’t captured just through tracking error and volatility – natural resource scarcity and demographic and climate changes are also risks.”

Read the full interview here.

 

Photo by penagate via Flickr CC License

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