Your Questions Answered: Sustainable Investing and Pensions

For this post in our “CalPERS on Climate” series, we are answering frequently asked questions about sustainable investing and pensions.

Question: Why does CalPERS care about sustainable investing? Shouldn’t you just invest to make money to pay pensions?

Answer: CalPERS cares about sustainable investing because it helps protect our investments. This is incredibly important because 60 cents of every pension dollar we pay comes from our investment returns.

As a large global investor, we must manage the risk in our portfolio, and climate change is a risk. For example, when natural disasters rattle businesses and the economy, companies lose money. This means investors like CalPERS also lose out on returns.

With this in mind, we are working with companies to mitigate the climate change issues that affect their business. This is not only good for the businesses over the long term, but also good for our investments.

Question: How can you even begin to impact climate issues? It’s a massive problem and it can’t be solved by a pension fund.

Answer: Agreed, and that is why we are working with other large investors to address climate change issues. One example is our work through the Climate Action 100+. Through this initiative, CalPERS and more than 600 investors representing $55 trillion are working with companies to improve climate change governance and cut emissions.

Question: Why don’t you just divest? Sell your shares in companies that are the biggest contributors to climate change.

Answer: When you divest from a company, you lose your seat at the table and your ability to impact change at a company. You are simply selling your shares that will then be bought by other investors. These investors might not have the long-term investment horizon that CalPERS does, and therefore might not engage the company on important climate-related issues.

In addition, even if we were to sell our shares, our portfolio would still be impacted by the company’s effect on the climate. This means CalPERS’ portfolio would still absorb the impacts but lose our ability to do anything about them.

This is why CalPERS engages with companies on important issues such as climate change. It is just one way we are working to lower the risk to our portfolio.

Question: Do you have actual examples of impacts you’ve had? Or is sustainable investing just a “feel good” thing that CalPERS talks about?

Answer: There are many examples of how our sustainable investing efforts have had a real impact.

In global equity, by voting our proxies we can push companies to adapt to the low-carbon economy. This doesn’t just help the climate, but also helps companies so they aren’t left behind as their industry changes. We also helped add three new climate-conscious board members to the Exxon board, and we’re working with other investors and government regulators to require companies to publicly disclose important climate-related issues.

In private equity, we teamed with many other large investors to create the ESG Data Convergence Project—a benchmarking framework that will speed progress and transparency in private equity.

And in real assets, our Energy Optimization Initiative (PDF) updates many of our real estate holdings with the latest energy-efficient devices and materials. As the property owner, we see significant energy cost savings and our buildings attract and retain tenants more successfully.

If you are interested in learning more about our Sustainable Investing program, you can view our most recent update to the CalPERS Board.

This is the third article in our “CalPERS on Climate” series. These articles examine why CalPERS views climate change as an investment issue and detail our efforts in the sustainable investment space.