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New US pension fund prepares RfP for ESG option

CalSavers to continue hunt for ESG provider

California’s ambitious new state-backed auto-enrolment workplace pension scheme – predicted to swell to $98bn in assets over the next 15 years – is preparing to go to market with a Request for Proposals (RfP) for an ESG option, RI has learned.
State Street Global Advisors, the world’s third largest asset manager, was appointed to manage the investments of the new scheme in August, but the ESG option outlined in the initial RfP was dropped, with fees cited as the reason.  
CalSavers’ Board recommended at the time that the programme be launched without the ESG option, committing to “research and explore” options for the addition of an ESG fund at a later date.
But RI was told by a spokesperson for California Treasurer, John Chiang, that it “looks like the [ESG] RFP will be going out soon”, following an “in-depth review” conducted by US investment consultant Meketa Investment Group. 
CalSavers, which defines ESG as a “core outlook” in its Investment policy – including it among its 10 investment beliefs – is set to launch state-wide in 2019 with a pilot due to start soon.
Meketa concluded in its presentation to the Board of CalSavers this week that a “well-crafted RfP” based on its findings “will elicit qualified responses from the industry and allow the Board the option of including an ESG fund into the CalSavers investment line-up”.
Speaking ahead of the meeting, Chiang, who steps down next month as Treasurer, told RI: “We are going to bring that ESG option back up because many of us strongly believe in it”. He described CalSavers as “part of the re-building of the foundation of the retirement security of Californians”, which he said had been “weakened” over the last few decades.
Meketa encouraged the Board in its recommendations to consider both active and passive managers. But warned that CalSavers’ focus on fees will “eliminate many active options”.It recommended that the RfP stipulates that active funds with fees over 20 basis points (bps) would only be considered if combined with an index option that would lower the cost to below the 20bps threshold.
Meketa also advised that the proposed option cover a “broad set of ESG principles” rather than having a particular focus on, for example, climate; and that it be “balanced”, incorporating both equity and fixed income. Both these recommendations, it claimed, would increase member uptake by fostering simplicity, as it claims offering “multiple ESG funds” could “create confusion”.
The presentation also cited concerns that delaying the introduction of an ESG option could result in additional administrative costs and “create unintended inertia” amongst the potential seven million scheme members, as they are unlikely to switch options.
Meketa will work with CalSavers to evaluate responses to the RfP, with “finalist options and a recommendation” being brought to the Board for selection.
When RI asked Chiang about his future, now that his term as Treasurer is ending, he said he wanted “to continue to act in the public good”. Chiang mentioned both an educational institution that is interested in him teaching, and the “private sector in the energy space”, but couldn’t say too much as the details hadn’t been “hammered out”.
The election for the new California State Treasurer takes place on the 6 November.
Elsewhere, US data firm Nielsen Holdings has announced that it has added an ESG option to the retirement saving scheme offered to its US employees. The Vanguard FTSE Social Index Fund, which uses the FTSE4Good criteria to screen large- and mid-capitalization stocks for ESG factors, will now be available to scheme members through their 401k.