Leading investment consultant Roger Urwin of Towers Watson is helping the California Public Employees’ Retirement System (CalPERS) to thrash out how environmental, social and governance (ESG) issues fit in as it develops its investment beliefs.
Urwin, Global Head of Investment Content at the firm, and his colleague Michael Hall have facilitated a process to help the largest US pension fund formulate a set of core views about its role as an investor.
Part of that includes an internal debate within the $256bn giant, one of the world’s most influential investors, about the importance of ESG and sustainability.
Through a series of staff interviews and workshops, it’s emerged that CalPERS’ staff believe that strong corporate governance adds value and that it should engage companies on governance issues.
But the process has revealed that there is weaker consensus about the role of broader sustainability factors in investment decision-making (see below).
The report shows a “strong consensus” within the organisation that it should play a role in promoting orderly and regulated capital markets.
Conversely, there is no internal belief that the fund should target investments at specific social goals such as job creation, economic growth in California or environmental strategies – due to weak performance of such programmes in the past, the research found.
The next steps for the project are the development of a set of “straw man” test beliefs for discussion ahead of a sustainability workshop on June 17. The investment beliefs that are developed through the process are set to be adopted in September.
ESG comes under the theme of “contentious and unsettled topics” alongside issues such as the role of active management and private asset classes.Urwin’s views on investment beliefs and sustainability were discussed in his 2010 paper called Sustainable Investing Practice: Simplified Complexity.
Last year Urwin was instrumental in developing a sustainability roadmap for asset owners – where “performance with purpose” would be aided by long-term investment mandates and a greater sense of partnership between owners and fund managers.
Internal CalPERS support for investment beliefs
- Long-term value creation requires companies to successfully manage three forms of capital: financial, physical and human – 100% support.
- Companies with strong corporate governance outperform over the long-term and manage risk – 91%
- Effective management of environmental and social factors improves company performance over the long-term – 72%
- CalPERS should engage companies on governance – 90%
- Environmental factors should be incorporated into decision making by investors – 81%
- Social factors (fair labour, health and safety, diversity) should be incorporated into investors’ decisions – 72%
- CalPERS should engage companies on environmental and social issues – 63%