RI Analysis: Is CalPERS’ Jason Perez a turning point for ESG?

A board director of the Principles for Responsible Investment (PRI) has been voted off her fund by beneficiaries, in favour of an ESG sceptic.

To re-cap, CalPERS’ President Priya Mathur lost out last week to Jason Perez, a police officer critical of her “hobnobbing” with the United Nations, which we take to mean the UN-backed PRI.

In a campaign video, he said: “Mathur has failed CalPERS and put our retirement security at risk due in part to environmental, social and governance investing priorities regardless of the investment risk.”

Who is Jason Perez? He is an endowment member of the National Rifle Association (NRA), meaning he has an upgraded membership of the gun lobby group. He has opposed State Treasurer John Chiang over gun divestment, saying it’s an overly political act that “has nothing to do with keeping the fund healthy”.

He is also President of Corona Life Services, a pro-life clinic in the city of Corona southeast of Los Angeles.

He had numerous congratulatory messages on social media calling on him to end what one poster termed “social activism investing” and another called “political grandstanding that hurts the fund’s investment returns”.

Yes, some of that will be unpalatable to a lot of our readership. But is it incompatible with ESG?

A lot of the concerns he was raising ahead of the election, to do with Wall Street fees and the primacy of beneficiaries, are clear-cut ESG issues, regardless of what term you give to them.

Jay Youngdahl argued here for a philosophical rethink of ESG in the wake of Perez’s election and we would certainly agree this this is a time to reflect on what, in fact, we mean when we talk of ESG.

We’ve been hearing from various quarters that we have reached some sort of ESG plateau, with the likes of Triodos and others saying “ESG is no longer good enough”. Now that it’s “mainstream”, is it meaningless?

But what do we put in its place? Rob Lake talks of the Authentic Investor, while the new Shareholders for Change group speaks of morality and justice. We don’t know the answer, but it probably doesn’t reside in a whole load of A+ PRI scores.

But where does Perez’s election leave CalPERS?

The fund will have to elect a new president at a time when its executive team has been hit by the media storm over CEO Marcie Frost’s CV.

CalPERS, of course, is at the spearhead of investor work around climate change with its Anne Simpson chairing the Global Climate Action 100+ initiative, which was ‘soft launched’ by Mathur and others at PRI in Person 2017 in Berlin.There is no way around the fact that Mathur WAS fined thousands of dollars for ethics violations relating to her role at CalPERS by California’s political ethics watchdog, the Fair Political Practices Commission (FPPC).

This is difficult to defend. But on the plus side, she is credited with pushing investment beliefs at CalPERS.

Also at PRI in Person last year she was involved in getting a Tesla worker to explain to investors about working conditions at the electric car pioneer in the context of the ‘Just Transition’ element of the Paris Accord, which was very much in the credit column.

You could call it grandstanding, but we prefer to see it as a serious attempt to improve, if not save, the world by the responsible deployment of capital.

This all comes as it seems Norges Bank Investment Management reckons it is $38bn out of pocket for not divesting fossil fuels. For the New York State Common Retirement Fund, the figure is $22bn.

Quite clearly, whatever the benefits of ESG, they simply haven’t been communicated back down to a large slice of the CalPERS membership, who just see a jet-set elite failing to tackle CalPERS’ problems.

James McRitichie, the publisher of the CorpGov blog and a thorn in the side of corporate America, posted to Perez: “Glad to help you in any way I can at CalPERS, which needs to take a closer look at its own governance but is a terrific organization on the whole.”

Where does this leave the PRI?

For now, it’s status quo ante. We’re not sure we’d go as far as to say Perez’s election repudiates its US strategy. It is not a ringing endorsement but it shouldn’t hide the fact that there has been a lot of momentum around responsible investment in the US of late. States like New Jersey, Illinois, Oregon and Rhode Island have been stepping up to the plate alongside the traditional heartlands of New York and California. There’s a palpable sense of traction these days.

Our understanding is that Mathur’s seat on the board isn’t immediately in jeopardy, given the PRI’s articles of association. But it’s another headache for an initiative that has grappled with governance issues in the past. She no longer directly represents an asset owner on the PRI, given that her day job is with the Bay Area Rapid Transit (BART) in San Francisco, although of course she remains a CalPERS member.

So what’s next on the agenda at CalPERS? Just the small matter … of a board meeting next month.

We would like to repeat our invitation to Mr. Perez to speak at our forthcoming RI Americas event in New York on December 5-6, possibly via video link.