CalPERS says it wants to learn about ESG “distinctness” and is not prescriptive about strategy

Giant fund says strategies don’t need to be labelled or marketed as ESG

Further details have emerged about the California Public Employees Retirement System’s request for information about ESG investment strategies.

The giant US investor last month issued a ‘request for information’ (RFI) to help its staff research and assess public equity-based investment strategies that systematically incorporate ESG-related investment considerations.

The strategies must be “capable of delivering superior relative performance vs capitalization-weighted benchmark or benchmark segment, and/or superior risk-adjusted performance vs capitalization-weighted benchmark or benchmark segment during various market cycles”.

Now, in an update to the RFI, the fund, the largest US public pension plan, explains that it will consider “all strategies” that integrate ESG characteristics into the investment decision-making process.

“Strategies need not be labelled or marketed with an ESG-related name,” the Sacramento-based fund said in an addendum to the RFI answering specific questions it had received.

One question sought clarity about whether CalPERS envisaged a strategy that systematically incorporates ESG in the form of a quantitative process or overlay.

It was asked: “Is the search limited to active index strategies, or is it open to higher tracking error funds? Would CalPERS consider a concentrated, high tracking error, high conviction, and actively managed solution? Would you prefer information from a more quantitative, systematic investment teams or from fundamental teams?”The fund replied: “CalPERS is prioritizing the review of solutions that represents broad equity exposure with acceptable risk parameters as that approach is more aligned with our internal integration preferences.

“However, we are not prescriptive as to whether such a strategy is best achieved through a systematic or fundamental approach. If there is something unique about your firm’s fundamental ESG integration processes, we are interested in learning about its distinctness.”

It stressed that geography is “not a limiting factor”, saying the RFI is “open to domestic and global managers and strategies that cover any geographic region”.

It comes as the fund reportedly plans to participate in 17 proxy efforts on climate change directed at energy companies during the forthcoming US annual general meeting season.

Reuters quoted
Chief Investment Officer Ted Eliopoulos as saying during an investment committee board meeting that CalPERS would ask energy companies over the next three months for “disclosure of their climate change strategy, among other topics.”

Meanwhile, fund titan BlackRock is set to put renewed pressure on corporate to disclosure against issues like climate change and boardroom diversity, according to a Reuters report citing an advance copy of the firm’s latest engagement priorities.