Leading investors are moving forward on integrating climate change into their portfolios and solving complex problems without support or leadership from governments, a panel of experts at the PRI in Person annual conference in San Francisco said.
The $356 billion California Public Employees’ Retirement System (CalPERS) is developing a new approach to real-estate investment and has navigated complex tax issues that had made investments in renewables tricky.
“We have invested $500 million in the last couple of years in wind and solar and we are looking for more,” CalPERS managing investment director, sustainable investments, Beth Richtman said. “Renewables are an ideal investment with long contracts and long cashflow, but investment has been a challenge because of tax policy and required a creative problem-solving.”
CalPERS has also applied climate-conscious thinking to unearth opportunity in assets it already holds in its portfolio. The pension fund now looks at energy use in its $30 billion real-estate allocation, specifically introducing energy-saving measures in properties that require renovation.
“In the first two years of asking our manager these questions, they have identified 80 million kilowatt hours of electricity we can save annually,” Richtman said.
Now the pension fund is looking systematically at energy use across the whole real-estate portfolio, exploring initiatives such as installing community cooling systems into buildings, or better analysis of data to save energy.
“If you are not looking for energy-saving opportunities, you are leaving money on table,” Richtman said.
Australia’s HESTA, the $A46 billion ($33 billion) superannuation fund for health and community service workers, started investing in renewables in 2006; in 2012, it developed a climate-change policy.
“When we launched a climate-change policy, it was about protecting long term returns and about financial outcomes,” HESTA chair Angela Emslie said. “In 2015, we broadened this to a responsibility to improve the environment and society for our retirees who will face the outcomes of climate change,”
The fund is refreshing strategy and developing a transition plan to place $2.5 billion in a variety of low-carbon investment strategies, amounting to 6 per cent of the total portfolio.
Responsible investment strategy at PFZW, the €180 billion ($210 billion) Dutch pension fund for the healthcare industry, has grown out of the fund’s commitment to meet the needs of its participants.
“We asked our participants what they thought was important,” PFZW chief executive Peter Borgdorff said.
Pension returns and a “liveable world” were the two priorities beneficiaries came back with, and PFZW has now integrated these into a three-pillar policy that includes a commitment to sustainability. This includes a pledge to reduce the carbon footprint of the fund’s portfolio by 50 per cent by 2020, combined with continuing to be an active owner and pushing for change.
“The world will only change when companies change – we can help convince them to change,” Borgdorff said.
The fund is also committed to investing in solutions, pledging $20 billion by 2020.
“Reducing carbon is much easier than finding investments with impact,” Borgdorff noted.
Most progress on climate change in China has come from the country’s fast-growing green bond market since the green bond issue in 2015. Integration outside fixed income has been slow, but policymakers, including the Central Bank, regulators and government agencies like the Ministry of Finance, are pushing for the development of a green finance system, said Sau Ha Kwan, president of E Fund Management Co, the largest of China’s 128 fund managers. She called the push towards mandatory disclosure amongst China’s listed companies by 2020 “baby steps”, but said it showed policy moving in the right direction and reflected a determination to act.
Kwan also called for greater collaboration among pension funds to raise awareness of responsible investment amongst local investors in China.
“In China, progress is stymied by an absence of demand for responsible investment,” Kwan said. “As a service provider, we are equipping ourselves, but demand is missing.”
She noted that upcoming pension reform in China offers the chance to encourage long-term responsible investment.
“Asset managers should talk to pension fund trustees in China and make them see that responsible investment doesn’t sacrifice returns,” she urged delegates.