CalPERS develops ESG appraisal questionnaire for external asset managers

“Expectations document” aims for consistency in responses by providers.

The $240.6bn (€187.7bn) California Public Employees’ Retirement System (CalPERS), the largest US pension fund, is developing a questionnaire on environmental, social and governance (ESG) factors for its internal and external asset managers, in order, it says, to get some homogeneity in reporting.

CalPERS says it has found that ESG factors are not articulated consistently across the range of managers it uses, both internal (mostly public assets) and external (private).

Its Global Equity team has piloted the manager questionnaire and is working to translate the responses into a score which can be included in a “qualitative assessment of manager skill”, according to a Global Governance Program update that was presented to the giant fund’s Investment Committee earlier this month.

“This concept will be rolled out across the other asset classes to establish a core set of ESG questions to be included in manager appraisal and tailored as needed for the strategy being considered,” it went on.

The questions will address both the institutional and investment policy and practices on ESG of managers.
It will result in an ‘expectations document’ for both internal and external managers.The ESG questionnaire is part of a wider push to integrate ESG factors across the whole fund.

The fund this year set up an ESG Cross-Asset Class Team and also published its first ever total fund sustainability report. And alongside fellow California fund CalSTRS it launched the Diverse Director Datasource (3D), a database of potential company directors.

The two funds are planning a “board matching session” between 3D candidates and companies in New York next month.

Another issue on the table for CalPERS is the lack of global consensus on the evidence for how ESG factors influence financial performance. “There is a need for clarity on the definition of sustainability and its impact on investment risk and return across each asset class,” the documents state.

To this end, it has commissioned the University of California, Davis, Graduate School of Management (UCD), to analyse the academic and market evidence of the impact of ESG factors on risk and return.

“This research will inform CalPERS Total Fund ESG strategy and development of investment beliefs.”

CalPERS and UCD will host a symposium in April 2013 to discuss the findings from the review. Link to CalPERS