CalSTRS to push money managers on integrating climate risk into investment and voting

Report by Ceres says 71% of fund managers ignore potential climate risks.

The $131.9 billion California State Teachers’ Retirement System (CalSTRS) is to encourage its active equity and fixed-income managers to incorporate climate risk into their investment analysis and corporate governance voting practices. The move was confirmed by Ricardo Duran, pension fund spokesman. The fund said its plans underscore “the need for each manager to have expertise in climate change and other sustainable investment analysis and to adapt their corporate governance voting practices to address climate risks.” However, CalSTRS plans to continue using managers that don’t incorporate climate risk analysis. Duran said: “At this point, it’s an engagement process.” He said CalSTRS wants to impress on its managers the importance of including climate risk as part of their due diligence in their investment decision-making. Among other things, CalSTRS officials expect to contact and meet with the fund’s combined 50 equity and fixed-income managers, which run a total of $57bn for the fund. The fund plans to begin the engagement soon, although a timetable hasn’t been set. Duran said: “Climate risk is a factor in long-term value, that’s what CalSTRS CEO Jack Ehnes has said. So climate risk ought to be looked at, not as the sole factor but as a contributing factor in investment value.”Ehnes also sits is on the board of directors of Ceres, the US environmental investor coalition. CalSTRS is also a leading member of the Investor Network on Climate Risk (INCR), a group of more than 80 institutional investors overseeing a combined $8 trillion in assets. In a recently issued 52-page Ceres report, titled: “Investors Analyze Climate Risk and Opportunities: A Survey of Asset Managers’ Practice,” Ehnes said: “As a long-term investor, CalSTRS wants to invest in well-managed companies that can address the physical risks of climate change and adapt to the changing regulatory and market realities of a carbon-constrained economy,” “Our asset managers need to ask the right questions and critically evaluate how companies are positioned so that we’re sure that our investments will produce outstanding risk-adjusted returns for our members.” Among the report’s key findings, 71% of money managers surveyed do not factor climate risk into their investment analysis when they are not marketing a “green fund.” The respondents in this category manage an aggregate of $4.5 trillion, more than half of the total of $8.6 trillion managed by the 84 managers who responded overall to the survey, the report said. The survey results, collected in early 2009, highlight the lag of major financial markets to deal with climate change, even as strong state and national climate
policies are being adopted globally,” Mindy S. Lubber, president of Ceres and director of the INCR, said ina statement about the report.
Barry B. Burr is the editorial page editor at Pensions & Investments