{"id":1118,"date":"2018-09-06T15:31:07","date_gmt":"2018-09-06T19:31:07","guid":{"rendered":"https:\/\/ga-institute.com\/to-the-point\/?p=1118"},"modified":"2018-09-17T14:06:15","modified_gmt":"2018-09-17T18:06:15","slug":"california-leads-the-way-again-states-giant-pension-funds-must-now-consider-portfolio-climate-risks-report-on-results-its-the-law","status":"publish","type":"post","link":"https:\/\/ga-institute.com\/to-the-point\/california-leads-the-way-again-states-giant-pension-funds-must-now-consider-portfolio-climate-risks-report-on-results-its-the-law\/","title":{"rendered":"California Leads the Way (Again) \u2013 State\u2019s Giant Pension Funds Must Now Consider Portfolio Climate Risks &#038; Report on Results \u2013 It\u2019s the Law"},"content":{"rendered":"<p><img loading=\"lazy\" decoding=\"async\" class=\"alignright size-full wp-image-516\" src=\"https:\/\/ga-institute.com\/to-the-point\/wp-content\/uploads\/2017\/08\/Calpers-logo.png\" alt=\"\" width=\"155\" height=\"160\" \/>There are two large pension funds in the <strong>State of California<\/strong> whose names and abbreviations are well known to other investors and to the boards and senior managements of the companies the funds invest in.\u00a0 These are the <strong>California Public Employees\u2019 Retirement System<\/strong> (\u201cCalPERS\u201d) and the <strong>California State Teachers\u2019 Retirement System<\/strong> (\u201cCalSTRS\u201d).<\/p>\n<ul>\n<li>CalPERS manages more than US$350 billion in assets, including hefty investments in corporate equities. (Corporate managers:\u00a0 look in your top shareholder list \u2013 is CalPERS there?)<\/li>\n<li>CalSTRS manages more than $220 billion; the portfolio is diversified into seven asset classes.<\/li>\n<\/ul>\n<p>With a new law passed in California by the legislature and awaiting the governor\u2019s signature, both funds will be mandated to identify climate risk in their portfolios and disclose the risks to the public and the legislature (formal report every three years).<\/p>\n<p>Not only that, but the funds themselves will have to report <em>their ow<\/em>n carbon footprints and the progress (or lack of) moving toward the 2-Degrees C goals of the <strong>COP 21<\/strong> (2015) Paris Agreement and their own climate change policy goals.<\/p>\n<p>The funds will also disclose the engagements with companies concerning climate-related financial risks.<\/p>\n<p><strong><img loading=\"lazy\" decoding=\"async\" class=\"alignright wp-image-1119 size-thumbnail\" src=\"https:\/\/ga-institute.com\/to-the-point\/wp-content\/uploads\/2018\/09\/Environment-California-150x150.png\" alt=\"\" width=\"150\" height=\"150\" srcset=\"https:\/\/ga-institute.com\/to-the-point\/wp-content\/uploads\/2018\/09\/Environment-California-150x150.png 150w, https:\/\/ga-institute.com\/to-the-point\/wp-content\/uploads\/2018\/09\/Environment-California.png 225w\" sizes=\"auto, (max-width: 150px) 85vw, 150px\" \/> <img loading=\"lazy\" decoding=\"async\" class=\"alignright wp-image-1120 size-thumbnail\" src=\"https:\/\/ga-institute.com\/to-the-point\/wp-content\/uploads\/2018\/09\/Fossil-Free-California-300x300-150x150.jpg\" alt=\"\" width=\"150\" height=\"150\" srcset=\"https:\/\/ga-institute.com\/to-the-point\/wp-content\/uploads\/2018\/09\/Fossil-Free-California-300x300-150x150.jpg 150w, https:\/\/ga-institute.com\/to-the-point\/wp-content\/uploads\/2018\/09\/Fossil-Free-California-300x300.jpg 300w\" sizes=\"auto, (max-width: 150px) 85vw, 150px\" \/>Fossil Free California<\/strong> campaigned to get the legislation (SB 560\/Allen) passed, partnering with <strong>Environment California<\/strong>.\u00a0 (This is \u201cthe Climate Risk of Pension Investments\u201d statute.)<\/p>\n<p>Both CalPERS and CalSTRS are participants in the Investor Network on Climate Risk (<strong>INCR<\/strong>) that is managed by the NGO <strong>Ceres.<\/strong><\/p>\n<p>Of course, there is the expected criticism:\u00a0 In December 2017 a pro-business group (the <strong>American Council for Capital Formation<\/strong>) released a report that criticized CalPERS\u2019 focus on \u201cESG investments\u201d and said the approach was dragging down returns.<\/p>\n<h3 style=\"padding-left: 30px;\"><span style=\"color: #3366ff;\"><strong><em>Reality:\u00a0 The system\u2019s ROI for FY 2018 was beyond 8% &#8212; exceeding CalPERS own target of 7% return.\u00a0 (The gain included 16% return on P\/E investments and 8% on real estate.)<\/em><\/strong><\/span><\/h3>\n<p>California has a \u201c<strong>Global Climate Action Summit<\/strong>\u201d scheduled for mid-September in San Francisco, presided over by <strong>Governor Jerry Brown<\/strong>.<\/p>\n<h2><strong>G&amp;A Institute Perspective<\/strong><\/h2>\n<p>The companies whose shares are in the portfolios of these two funds are already hearing from fund managers about climate change risk and the expectation (demand, really) that the public company management and board will focus on climate risk, develop strategies, take action and report on the results to the two California funds.<\/p>\n<p>The California legislation requiring the funds to consider portfolio climate risk and disclose the information will further develop the public ESG profiles of the public companies that CalPERS and CalSTRS invest in, something other investors are tuned in to.<\/p>\n<p>And peer fiduciaries \u2013 especially public employee and labor funds \u2013 will be watching the effects of this first in the nation legislation requiring all of this examination, engagement and disclosure.<\/p>\n<h3 style=\"padding-left: 30px;\"><span style=\"color: #3366ff;\"><strong><em>The California action is not in isolation; U.S. and other nations\u2019 fiduciaries and public company managements would do well to follow similar developments in Europe.<\/em><\/strong><\/span><\/h3>\n<p>In Europe, the <strong>EU Commission<\/strong> is moving toward mandatory financial sector climate risk disclosure as part of the planned transition to a lower-carbon economy.\u00a0 Measures are expected to be in place over the next year for standards for disclosure for investors.<\/p>\n<p>This is part of the \u201cAction Plan \u2013 Financing Sustainable Growth\u201d that could establish a framework for the entire financial system as part of the forward movement of the Paris Agreement.<\/p>\n<p>The <strong>European Union<\/strong> has a \u201cHigh Level Expert Group on Sustainable Finance\u201d (created December 2016) that made recommendations to the EU leadership. There are 10 recommendations; one is for legislation to be introduced to mandate that ESG factors are considered by the financial sector.<\/p>\n<h2><strong>References<\/strong><\/h2>\n<ul>\n<li>Fossil Free California information: <a href=\"https:\/\/fossilfreeca.org\/legislation\/\">https:\/\/fossilfreeca.org\/legislation\/<\/a><\/li>\n<li>The European Union\u2019s High Level group recommendations: <a href=\"https:\/\/ec.europa.eu\/info\/publications\/180131-sustainable-finance-report_en\">https:\/\/ec.europa.eu\/info\/publications\/180131-sustainable-finance-report_en<\/a><\/li>\n<li>The related EU Action Plan: <a href=\"http:\/\/427mt.com\/wp-content\/uploads\/2018\/03\/180308-action-plan-sustainable-growth_en.pdf\">http:\/\/427mt.com\/wp-content\/uploads\/2018\/03\/180308-action-plan-sustainable-growth_en.pdf<\/a><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>With a new law passed in California by the legislature and awaiting the governor\u2019s signature, both funds will be mandated to identify climate risk in their portfolios and disclose the risks to the public and the legislature (formal report every three years).\u00a0<\/p>\n<p>Not only that, but the funds themselves will have to report their own carbon footprints and the progress (or lack of) moving toward the 2-Degrees C goals of the COP 21 (2015) Paris Agreement and their own climate change policy goals.<\/p>\n","protected":false},"author":14,"featured_media":516,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[1839,1842,303,630,302,730,874,32,1840,1835,1838,1841,1487,1837,1836,555],"class_list":["post-1118","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","tag-american-council-for-capital-formation","tag-california-climate-risk-of-pension-investments-statute","tag-california-public-employees-retirement-system","tag-california-state-teachers-retirement-system","tag-calpers","tag-calstrs","tag-ceres","tag-climate-change","tag-environment-california","tag-eu-regulations","tag-fossil-free-california","tag-global-climate-action-summit","tag-governor-jerry-brown","tag-incr","tag-investor-network-on-climate-risk","tag-paris-agreement"],"acf":[],"_links":{"self":[{"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/posts\/1118","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/users\/14"}],"replies":[{"embeddable":true,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/comments?post=1118"}],"version-history":[{"count":3,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/posts\/1118\/revisions"}],"predecessor-version":[{"id":1124,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/posts\/1118\/revisions\/1124"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/media\/516"}],"wp:attachment":[{"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/media?parent=1118"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/categories?post=1118"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/tags?post=1118"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}