Tag Archives: CalSTRS

When Will Sustainable Investing Be Considered to be in the Mainstream?

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by Hank Boerner – Chair and Chief Strategist, G&A Institute

“Movements” – what comes to mind when we describe the characteristics of this term are some 20th Century examples.

The late-20th Century “environmental movement” was a segue from the older 19th and early 20th Century “conservation movement” that was jump started by President Theodore Roosevelt (#26), who in his 8 years in the Oval Office preserved some 100,000 acres of American land every work day (this before the creation of the National Parks System a decade later).

The catalysts for the comparatively rapid uptake of the environmental movement?  American rivers literally burned in the 1960’s and 1970’s (look it up – Cuyahoga River in Ohio was one).

And that was just one reason the alarm bells were going off.  New York’s Hudson River was becoming an open, moving sewer, with its once-abundant fish dying and with junk moving toward the Atlantic Ocean.  Many East Coast beaches were becoming fouled swamp lands.

One clarion call – loud & clear — for change came from the pen.  The inspired naturalist / author Rachel Carson wielded her mighty pen in writing the 1962 best-seller, “Silent Spring”. 

That book helped to catalyze the rising concerns of American citizens. 

She quickly attracted great industry criticism for sounding the alarm…but her words mobilized thousands of early activists. And they turned into the millions of the new movement.

She explained the title:  There was a strange stillness.  Where had the little birds gone? The few birds seen anywhere were moribund; they trembled violently and could not fly.”  (Hint:  the book had the poisonous aspects of the DDT pesticide at its center as the major villain.)

Americans in the 1960s were becoming more and more alarmed not only of dumping of chemical wastes into rivers and streams and drifting off to the distant oceans —

—but also of tall factory smokestacks belching forth black clouds and coal soot particles;

–of large cities frequently buried beneath great clouds of yellow smog a mile high on what were cone clear days;

–of dangerous substances making their way into foods from the yields of land and sea;

–of yes, birds dropping out of the sky, poisoned;

–of tops of evergreen and other trees on hilltops and mountains in the Northeast burned clean off by acid rain wafting in from tall utility smokestacks hundreds of miles away in the Midwest…and more. 

Scary days. For public health professionals, dangerous days.

We will soon again be celebrating Earth Day; give thanks, we are long way from that first celebration back in spring 1970. (Thank you, US Senator Gaylord Nelson of Wisconsin for creating that first Earth Day!)

Most of our days now are (as the pilots cheer) CAVU – ceiling (or clear) and visibility unlimited. 

We can breathe deep and as we exhale thank many activists for persevering and driving dramatic change and creating the modern environmental movement… and on to the sustainability movement. 

And now – is it time (or, isn’t time!) for another movement along these lines…the sustainable investing movement going mainstream? 

Experts pose the question and provide some perspectives in this week’s Top Story.

In Forbes magazine, they ask:  “Why Hasn’t Sustainable Investing Gone Viral Yet?”

Decio Fascimento, a member of Forbes Council (and chief investment officer of the Richmond Global Compass Fund) and the Forbes Finance Council address the question in their essay.

In reading this, we’re reminded that such mainstream powerhouse asset managers as BlackRock, State Street/SSgA, Vanguard Funds, TIAA-CREF, and asset owners New York State Common Fund, New York City pension funds (NYCPERS), CalPERS, CalSTRS and other capital market players have embraced sustainable investing approaches. 

But – as the authors ask:  what will it take for many more capital market players to join the movement?  There’s interesting reading for you in the Top Story – if you have thoughts on this, send them along to share with other readers in the G&A Institute universe.

Or send comments our way to supplement this blog post.


This Week’s Top Stories

Why Hasn’t Sustainable Investing Gone Viral Yet?
(Wednesday – April 10, 2019) Source: Forbes – Let’s first look at what sustainability looks like in financial terms. In sustainable investing, the ideal scenario is when you find opportunities that produce the highest returns and have the highest positive impact. 

And of further reading for those interested:

California – America’s Sovereign State of Sustainability Superlatives!

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While the Federal Government Leaders Poo-Pooh Climate Change, the Sovereign State of California Continues to Set the Pace for America and the World!

Focus on The State of California – the America’s Sovereign State of Superlatives Including in the Realm of Societal Sustainability…

By Hank Boerner – Chair and Chief Strategist – G&A Institute

We are focusing today on the “Golden State” – California – America’s sovereign state of sustainability superlatives!

The U.S.A.’s most populous state is forceful and rigorous in addressing the numerous challenges of climate change, ESG issues, sustainable investing and other more aspects of life in this 21st Century.

Think about this: California is by itself now the fifth largest economy in the world. The total state GDP (the value of goods & services produced within the borders) is approaching US$ 3 trillion. The total U.S.A. GDP is of course the largest in the world (it includes California GDP) and then comes China, Japan, Germany… and the state of California!

The California population is about 40 million people – that means that roughly one-in-eight people in the U.S.A. live in the Golden State.

Stretching for 800+ miles along the coastline of the Pacific Ocean, California is third largest in size behind Alaska (#1)  and Texas and takes the honor of setting the example for the rest of the U.S.A. in societal focus on sustainability.

Most investors and public company boards and managements know that the large California pension fund fiduciaries (institutional investors) often set the pace for U.S. fiduciary responsibility and stewardship in their policies and activities designed to address the challenges of climate change, of global warming effects.

The state’s two large public employee pension funds —  CalPERS (the California Public Employees’ Retirement System) and CalSTRS (the California State Teachers’ Retirement System) have been advocates for corporate governance reforms for public companies whose shares are in their portfolios.

CalPERS manages more than US$350 billion in AUM; CalSTRS, $220 billion.

A new law in California this year requires the two funds to identify climate risk in their portfolios and to disclose the risks to the public and legislature (at least every three years)

CalSTRS and CalPRS will have to report on their “carbon footprints” and progress made toward achieving the 2-Degrees Centigrade goals of the Paris Accord.

Looking ahead to the future investment environment — in the  emerging “low carbon economy” — CalPERS is pointing more of its investments toward renewable energy infrastructure projects (through a direct investment program). The fund has invested in two solar generation facilities and acquired a majority interest in a firm that owns two wind farms.

Walking the Talk with proxy voting: long an advocate for “good governance,” CalPERS voted against 438 board of director nominees at 141 companies this year in proxy voting. CalPERS said this was based on the [companies’] failures to respond to it effort to engage with corporate boards and managements to increase board room diversity.

CalPERS’ votes including “no” cast on the candidacy of numerous board chairs, long-term directors and nominating & governance committee chairs. This campaign was intended to “create heat” in the board room to increase diversity. CalPERS had solicited engagements with 504 companies — and more than 150 responded and added at least one “diverse” director.  CalSTRS joins its sister fund in these campaigns.

During the year 2018 proxy voting season, to date, CalPERS has voted against executive compensation proposals and lack of diversity in board room 43% of the time for the more than 2,000 public companies in the portfolio.

Other fiduciaries in the state follow the lead of the big funds.

The San Francisco City/County Employee Retirement Fund

The San Francisco Employees’ Retirement System (SFERS) with US$24 billion in AUM recently hired a Director of ESG Investment as part of a six-point strategy to address climate risk.  Andrew Collins comes from State Street Global Advisors (SSgA) and the Sustainable Accounting Standards Board (SASB – based in SFO) where he helped to develop the ESG accounting standards for corporations in 80 industries.

The approach Collins has recommended to the SFERS Investment Committee:

  • Engagement through proxy voting and support for the Investor Network on Climate Risk (INCR) proxy resolutions.
  • Partnerships with Climate Action 100+, Principles for Responsible Investment (PRI), Ceres, Council of Institutional Investors, and other institutional investor carbon-reducing initiatives.
  • Active ESG consideration for current and future portfolio holdings.
  • Use of up-to-date ESG analytics to measure the aggregate carbon footprint of SFERS assets; active monitoring of ESG risks and opportunities; continued tracking of prudent divestment of risky fossil fuel assets.

The staff recommendations for the six point approach (which was adopted) included:

  • Adopt a carbon-constrained strategy for $1 billion of passive public market portfolio holdings to reduce carbon emissions by 50% vs. the S&P 500 Index.
  • Hire a director of SRI to coordinate activities – that’s been done now.

As first step in “de-carbonization” the SFERS board approved divestment of ExxonMobil, Royal Dutch Shell and Chevron (September 2018) and will look at other companies in the “Underground 200 Index”.  The pension fund held $523 million in equities in the CU200 companies and a smaller amount of fixed-income securities ($36MM).

Important background is here:  https://mysfers.org/wp-content/uploads/012418-special-board-meeting-Attachment-E-CIO-Report.pdf

There are 70,000 San Francisco City and County beneficiaries covered by SFERS.

At the May 2017 SFERS board meeting, a motion was made to divest all fossil fuel holdings.  An alternative was to adopt a strategy of positive investment actions to reduce climate risk. The board approved divestment of all coal companies back in 2015.

California Ignores the National Leadership on Climate Change

In 2015, the nations of the world gathered in Paris for the 21st meeting of the “Conference of Parties,” to address climate change challenges. The Obama Administration signed on to the Paris Accord (or Agreement); Donald Trump upon taking office in January 2017 made one of his first moves the start of withdrawal from the agreement (about a three year process).

American states and cities decided otherwise, pledging to continue to meet the terms previously agreed to by the national government and almost 200 other nations – this is the “We are still in movement.”

The State of California makes sure that it is in the vanguard of the movement.

This Year in California

The “Global Climate Action Summit” was held in San Francisco in September; outgoing Governor Jerry Brown presided. The meeting attracted leaders from around the world with the theme, “Take Ambition to the Next Level,” designed to encourage collaboration among states, regions, cities, companies, investors, civic leaders, NGOs, and citizens to take action on climate change issues.

Summit accomplishments:  there were commitments and actions by participants to address: (1) Healthy Energy Systems; (2) Inclusive Economic Growth; (3) Sustainable Communities; (4) Land and Ocean Stewardship; and (5) Transformative Climate Investments.  Close to 400 companies, cities, states and others set “100 percent” renewable energy targets as part of the proceedings.

New “Sustainability” Laws

The California State Legislature passed the “100 Percent Clean Energy Act of 2018” to accelerate the state’s “Renewable Portfolio Standard” to 60% by year 2030 — and for California to be fossil free by year 2045 (with “clean, zero carbon sourcing” assured). Supporters included Adobe and Salesforce, both headquartered in the Golden State; this is now state law.

Governor Jerry Brown issued an Executive Order directing California to achieve “carbon neutrality” by the year 2045 — and to be “net zero emissions” after that.

Building “De-Carbonization”

The state legislature this year passed a “Investor Network on Climate Risk (INCR) ” measure that is now law, directing the California Energy Commission to create incentives for the private sector to create new or improved building and water heating technologies that would help reduce Greenhouse Gas emissions.

Water Use Guidelines

Water efficiency laws were adopted requiring the powerful State Water Resources Control Board to develop water use guidelines to discourage waste and require utilities to be more water-efficient.

About Renewables and Sustainable Power Sources

Walking the Talk: Renewables provided 30% of California power in 2017; natural gas provided 34% of the state’s electricity; hydropower was at 15% of supply; 9% of power is from nuclear. The state’s goal is to have power from renewables double by 2030.

California utilities use lithium-ion batteries to supplement the grid system of the state. PG&E is building a 300-megawatt battery facility as its gas-generating plants go off-line.

Insurance, Insurers and Climate Change Challenges

There are now two states — California and Washington — that participate in the global Sustainable Insurance Forum (SIF); the organization released a report that outlines climate change risks faced by the insurance sector and aims to raise awareness for insurers and regulators of the challenges presented by climate change. And how insurers could respond.

The Insurance Commissioner of California oversees the largest insurance market in the U.S.A. and sixth largest in the world — with almost $300 billion in annual premiums.  Commissioner Dave Jones endorsed the 2017 recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (the “TCFD”) and would like to see the now-voluntary disclosures be made mandatory by the G-20 nations. (The G-20 created the Financial Stability Board after the 2018 financial crisis to address risk in the financial sector).

In 2016 the Insurance Commissioner created the requirement that California-licensed insurance companies report publicly on the amount of thermal coal enterprise holdings in portfolio — and asked that the companies voluntarily divest from these enterprises.  Also asked: that insurers of investments in fossil fuel companies (such as thermal coal, oil, gas, utilities) survey or “data call” on these companies for greater public financial disclosure.

What About a Carbon Tax for California?

The carbon tax – already in place. California has a “cap and trade” carbon tax adopted in 2013; revenues raised go into a special fund that finances parks and helps to make homes more energy efficient. The per ton tax rate in 2018 was $15.00.  The program sets maximum statewide GhG emissions for covered entities in power and industrial sectors and enables them to sell allowances (the “trade” part of cap & trade). By 2020, the Cap and Trade Program is expected to drive more than 20% of targeted GhG emissions still needed to be reduced.

As we said up top, the “Golden State” – California – is America’s sovereign state of sustainability superlatives!

There is more information for you at G&A Institute’s “To the Point!” management briefing platform:

Brief:  California Leads the Way (Again) – State’s Giant Pension Funds Must Now Consider Portfolio Climate Risks & Report on Results – It’s the Law

 

 

Focus On The Corporate Sustainability Journey This Week – News & Opinion All Around the Topic in Various Communications Channels…

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by Hank Boerner – Chair and Chief Strategist – G&A Institute

Remember the great Beatles’ song…Here, There and Everywhere?  That’s what seems to be happening with “Corporate Sustainability” these days.

The news and commentary seem to be everywhere now, with an examination of how the corporate sector is embracing the concept and developing strategies, action plans, assigning teams and moving forward to address ESG issues.

When we began our sustainability news, commentary and research sharing at Governance & Accountability Institute more than a decade ago, the items were few and far between, skimpy and more periodic than regularly appearing.

Today, a widening range of media and communications channels bring us the news of what the players in the corporate sector are doing — and how institutional investors and other key stakeholders are responding to same.

We see numerous news stories and commentary about what companies are doing in their sustainability journey…and how this matters in so many ways for the issuer (such as improved risk management, more effective investor relations, greater access to capital, enhanced reputation for recruiting and retaining human capital, preferred supplier status, and more).

G&A Institute is the data partner for the USA, UK and Republic of Ireland for the Global Reporting Initiative (GRI) and in this role, we gather and analyze (and then database) the corporate sustainability and CR reports of literally hundreds upon hundreds of companies.

The progress we’ve seen companies making in their journeys is encouraging and pretty astounding if you think back just 10 years or so (to the dark days of 2008).

And so as companies move ahead in the journey and greatly expand their disclosure and reporting, the communication channels light up with the “sustainability” news, commentary and research focused on a company, a group of peers, investors, an industry or a sector.

We selected a few examples for you this week.  First, from the food processing industry, an examination by Kevin Piccione (he describes his company’s effort – Sealed Air, an early sustainability adopter).

He cites the World Economic Forum finding that most “sustainable companies” outperform their peers by a third – but only 2% actually achieve or exceed their sustainability goals. So why do they succeed?  A brief review for you.

The second article for you is Harry Menear’s more in-depth piece from Energy Digital, examining which companies stand out for “green credentials”.

His focus is on the Corporate Knight’s “Top 10 Sustainable Companies” roster, which is drawn from comprehensive research on 6,000 companies worldwide across all industries (for companies with US$1 billion revenues).

The companies were scored on energy use, carbon, waste and clean air production, innovation expenditures, taxes paid, diversity of leadership, supply chain management, and other elements of the sustainability journey.  Which companies made the Top 10?  The link is below for your reading.

The third item is a note of caution from Bloomberg by Emily Chasan and Chris Martin — who point out that in the midst of the growing enthusiasm about corporate sustainability, there are some companies that investors call out for their “corporate greenwashing” (and they name names).  The authors cite the recent Ceres report on this (500 companies were analyzed).

They write:  Companies are still making questionable claims but accountability is rising.

Emily and Chris tell us companies (and their executives) are being forced now to admit to greenwashing (that is, “gushing” sustainability claims with a tenuous grip on reality).

Examined:  Mid-American; VW; Wal-Mart; Amazon; AB InBev SA.  There are perspectives shared on this by Calvert,  CalSTRS, BlackRock, Neuberger Berman, DWS Group, UBS.

And there are as always many items that our editors share this week in the Highlights, as we say, drawn for you from the many communications channels that our team monitors every day.  Let us know your thoughts as to how we are doing and what you would like to see!

This Week’s Top Stories

Achieving your sustainability goals does not mean sacrificing profits
(Thursday – August 16, 2018) Source: Food Processing – Nearly 90% of business leaders believe that sustainability is essential to remaining competitive and despite the clear link between sustainability and profit, only 2% of companies either achieve or exceed their sustainability…

Top 10 Sustainable Companies
(Monday – August 13, 2018) Source: Energy Digital – Which companies stand out for their green credentials? Energy Digital finds out.

Investors Are Increasingly Calling Out Corporate Greenwashing
(August 20, 2018) Source: Bloomberg – Corporate sustainability reporting has risen dramatically over the last few years, with 85 percent of the S&P 500 index producing annual corporate responsibility documents in 2018, up from just 20 percent in 2011, according to the Governance & Accountability Institute. That’s partially due to investor demand. Assets in sustainable investment funds grew 37 percent last year, according to data tracked by Bloomberg.

Pension Fund Activists Focus on Climate Change, Diversity, Director Nomination Process — with New York City Funds in the Lead

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by Hank Boerner– Chairman, G&A Institute

Leading and influential activists in the sustainable & responsible investment community are focusing on the filing of their 2015 corporate proxy ballots with ESG issues top-of-mind. Let’s take a look at the actions of the New York City (5) pension funds (with US$160 billion in Assets Under Management).

The city comptroller, Scott M. Stringer, was elected in November 2013, along with the new high-visibility mayor (Bill DeBlasio).  Under Comptroller Stringer’s direction, the fund(s) are filing proxy proposals with 75 companies to demand a greater voice in the nomination of boards of directors.  This is the characterized as “giving shareowners a true voice in how boards are elected.” .

This campaign is designed to roll out proxy access demands across the broad public company universe in the United States.  Back in the 1800s, one of the corrupt big city political bosses was William M. “Boss” Tweed.  Said Comptroller Stringer:  “The current ]corporate] election procedures would make Boss Tweed blush. We are seeing to change the market by having more meaningful director elections through proxy access, which will make boards more responsive to shareowners.  We expect to see better long-term performance across our portfolio…”

(As local point of reference, Boss Tweed of Tammany Hall was a member of Congress and director of the Erie Railroad Company and 10th National Bank.  He was convicted of corruption and died in jail in 1878.  His name is synonymous with corruption, cronyism, political back slapping.)

The NYC comptroller serves as investment advisor to, and custodian and trustee of the 5 funds, which are for city employee beneficiaries — teachers, police, fire department, board of education, city employees.

“Proxy access” is the ability for owners to nominate directors in addition to — or in opposition to — the company’s slate of directors (in the proxy statement).  Comptroller Stringer wants to give shareholders with (1) 3% of shares and (2) holding the shares for 3 years the “threshold” of being able to nominate candidates for board service, up to (3) 25% of the total board membership.  Those companies not agreeing to the proposal received the NYC fund ballot initiative.

And big corporate names are involved; the resolutions are being filed at:

  • 33 carbon intensive coal, oil & gas, and utility companies (such as Duke Energy, ExxonMobil, Chevron, Apache, AEP (power), Southwestern Energy, ConocoPhilipps, Peabody Energy);
  • 24 companies with few / or no women on the board, and “little or no” racial or ethnic diversity – including eBay, Priceline, Level 3 Communications, Urban Outfitters, Alexion Pharma;
  • 25 companies that received “significant” opposition to 2014 shareholder votes (advisory, not binding) on their executive compensation plans.

In focus: :”Zombie directors”  – of 41 corporate directors receiving less than a majority vote in 2013, 40 remain on their boards.  As Comptroller Stringer described them, “unelected, but still serving…

“This is all part of what the pension fund leaders call their “Boardroom Accountability Project,” designed to call attention to as boards of directors and their perceived failure to address critical issues — climate risk, excessive compensation and lack of diversity in the board room.

Note that under “”plurality” voting in un-contested elections, a director who receives just one vote (his or hers counts if shares are owned) is re-elected…even if every other vote is cast against him.  The project seeks to have companies amend their bylaws to change that situation.

New York State Comptroller Tom DiNapoli was re-elected by an overwhelming statewide majority in November; he enthusiastically endorsed the city funds’ project (he is the sole trustee of the US$180 billion New York State Common Fund). He described the Board Accountability Project as a wake-up call to boards of directors to change the way business in the board room is done.

Also in support:  Anne Stausboll, CEO for California Public Employees Retirement System (CalPERS) — the nation’s largest public employee pension fund with US$ 300 billion in AUM.

Her colleague, Anne Sheehan, corporate governance director at the California State Teachers Retirement System (CalSTRS) termed the board accountability project “long overdue for our country,” voicing her support.  The fund has US$186 billion AUM.

This is not just a “New York City” liberal-leaning thing — voicing support for the project were other public sector fiduciaries:

  • William R. Atwood, executive director of the Illinois State Board of Investment. (US$5 billion AUM)
  • Francis X. Bielli, executive director of the Philadelphia Board of Pensions & Retirement.   (US$4.5 billion AUM)
  • Travis Williams, chairman of the Firefighters Pension System of Kansas City, Missouri.  (US$460 million AUM)
  • Alex Fernandez, chairman of the Miami (Florida) Firefighters Relief and Pension Fund.( US$1.5 billion AUM)

Comptroller Scott Singer explained that the U.S. Securities & Exchange Commission (SEC) first proposed “universal proxy access” (for all shareholders) back in 2003 as a “way to end the Imperial CEO,” as Enron, WorldCom and other large-caps imploded and many went out of business.  In 2010, the SEC approved a universal policy access rule in response to the financial crisis.” In a federal district court case, the rule was set aside; the SEC still allows “private ordering,” the ability for shareowners such as pension funds to file resolutions to be placed on the annual voting ballot.

And so the battle lines are being drawn for 2015 corporate engagements.  Many of the public companies named by New York City funds are seen as leaders in sustainability, responsibility and accountability.  The proxy resolutions would seem to state otherwise.

It will be interesting to see how the Board Accountability Project progresses, and how corporate boards and C-suites see the demands presented for greater “Corporate Democracy.”

CalSTRS Shows Way on Corp Gov Issues

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One of the largest public employee pension funds in the USA is the California State Teachers’ Retirement System (CalSTRS), which has US$160 billion in Assets Under Management and serves 800,000 beneficiaries.  As the fund managers say, “We have an obligation to be responsible stewards of the retirement funds of California’s educators.”  And corp gov activists they are!

That includes being an activist and engaged institutional investor and focusing on issues [critical to fund managers] when CalSTRS engages with companies in the investment portfolio. The fund just issued  its very first Corporate Governance Annual Report (2013), which explains investment policies, governance philosophy, partnerships (example, with the Council of Institutional Investors/CII, the fund’s trade association; Ceres; UN Principles for Responsible Investment/PRI, of which CalSTRS is a signatory,  Investor Network on Climate Risk/INCR, a project of Ceres); and an explanation of corporate engagements.

Issues in focus for corporate engagement discussions include Exec Comp, Say on Pay; Majority Vote Standards; Diversity of Boards; and (of course) Sustainability.  The fund is an activist in filing and supporting other investors’ sponsored shareholder resolutions at proxy voting time.

In 2012 CalSTRS voted nearly 7,000 meetings — 3,000 U.S.A. and 4,000 non-US companies in portfolio.  Some 24,000 proposals were considered for the US companies and double that for non-US companies. 

CalSTRS believes that “good governance contributes to better long-term sustainable performance. Asset managers hired by CalSTRS take large positions in companies and are required to be active in engaging with boards and senior management to “undertake value-driving change…” Eight partnerships with asset managers are identified in the report.

This is a good primer if you are interested in learning more about what large US activist pension funds are focusing on in both the traditional governance and (newer) sustainability areas.  It’s available on line at the CalSTRS web site: http://www.calstrs.com/news-release/calstrs-releases-first-annual-corporate-governance-report

P.S.

Matthew Scott, Editor of Corporate Secretary in his timely and information email newsletter is informing his audience of influencers – corporate secretaries – of the CalSTRS governance report and suggesting that this is one way for board governance influential to better understand the large public fund’s focus on corporate engagements. He characterized the report as “a definitely a positive development for the corporate governance industry…”)  You can contact Matthew at Corporate Secretary magazine (Cross Border Publications) and follow him on Twitter – @corpsecmag