CalPERS joins Norway and APG in climate change asset allocation research project

The $200.9bn (€138bn) California Public Employees’ Retirement System (CalPERS) has joined with the Norwegian Government Pension Fund, APG Asset Management, the wholly-owned fund manager of the €180bn Dutch ABP civil servants pension fund, and Mercer, the global investment consulting firm, on a research project examining the implications of climate change on institutional investment allocation. The project was kicked off in June this year when the Norwegian government hired Mercer for the research. At its launch, Kristin Halvorsen, at that time Norwegian Finance Minister, called on other investors to join the programme. CalPERS appears to have responded to the call. According to an update given to CalPERS’ Investment Committee, staff from CalPERS’ Risk and Corporate Governance teams “have collaborated with a number of major international investors and Mercer to explore the development of an asset allocation model that integrates climate change risk”. Also involved in the project is Sir Nicholas Stern, the author of an influential UK government report on the cost of global warming. Halvorsen said in June: “Traditional strategic asset allocation modelling approaches have not taken climate risks, or opportunities, sufficiently into account. This project seeks to address that gap. This is an ambitious and complex task, which is more efficiently undertaken in collaboration with others. I therefore encourage large institutional investors and industry thought leaders worldwide to join forces in this project.Together we need to develop the tools and critical thinking that is required to understand the financial implications of climate change.” It is not known when the project will report its findings.Separately, CalPERS has written to the California Legislature with an update on its investments in Iran and Sudan. The fund is prohibited from investing in companies with operations in either country. Regarding Iran, the fund said it had identified ten portfolio companies as no longer being prohibited investments. A further twenty-four are being actively engaged, included four newly identified companies where engagement is set to begin (Aker Solutions, China Petroleum & Chemical Corp., CNPC Hong Kong Ltd. and ENI SpA.) Regarding Sudan, the fund said eleven portfolio companies were no longer prohibited after reviewing their business in the country. A further 11 companies are being engaged, of which two are new (Bharat Heavy Electricals and China Petroleum & Chemical). Elsewhere, consultant Wilshire Associates has assigned a 73% rating to CalPERS’ corporate governance program. A key recommendation was that the fund improve the “synchronicity” in its proxy voting. It points out that CalPERS may vote in one way while external managers may vote a different way on the same stock. Wilshire said that despite “stellar” performance of the corporate governance program since inception in 1996, over a three- and five-year term its returns have been “less than robust” and have underperformed the broader market.