Climate change isn’t just an environmental issue, it’s an investment issue. From changing coastal lines that impact real estate, to supply chain issues that impact manufacturing, companies’ bottom lines are affected by our changing climate.
As investors in thousands of companies, it is our responsibility to know how they are being impacted. We need to know what they are doing to mitigate for issues and if they see growth opportunities by bringing new solutions to the market.
One way for investors to learn this information is by requesting it be included in a company’s annual report. These reports disclose information about the company to shareholders so they can stay well informed about the businesses in which they invest. The reports provide a “state-of-the-company,” including financial data, market information, and research and development activities.
However, many of these reports leave out climate risk reporting. This information is just as important for investors because it impacts the long-term growth of a company. That is why CalPERS has long advocated for companies to include climate risk reporting in their annual reports. Without this vital information, shareowners don’t know what risks companies are currently facing and how they are addressing these risks. They also don’t know what future climate change issues could impact the company and the mitigation efforts that are, or aren’t, being put in place to reduce those impacts.
Without climate risk disclosure, investors also don’t have a full picture of what they are buying. And while no company can completely mitigate climate change risks, those that are properly planning for impacts and taking steps to lower risk in the future tend to generate stronger returns over the long-term.
We also advocate for climate risk reporting because it helps direct our engagement efforts with companies. Many times, we can understand a climate risk before it negatively impacts a company. If we see that a company isn’t taking steps to safeguard against this risk, and thereby not properly protecting our investment, we can engage with the company. Through these discussions, we can assist a company in addressing such risks before they impact the company’s value.
CalPERS views climate change, and associated risks and opportunities, as an investment issue. Our job is to pay pensions for generations and our investment portfolio is the largest contributor to these payments. By advocating for climate risk reporting, we can better protect our investments that help pay the pensions promised to our members.
This is the first article in a new “CalPERS on Climate” series. These articles will examine why CalPERS views climate change as an investment issue and detail our efforts in the sustainable investment space.