While AI might be the topic du jour, Philippe de Weck, chief investment officer for equities at Pictet Asset Management, thinks there’s another AI that investors need to reckon with: the adaptation imperative.
While much of the attention has been focused on mitigating climate change by investing in energy sources that reduce the carbon dioxide intensity of the energy mix, the reality is that “climate change is occurring and impacting assets”, and it’s necessary to make them resilient against it.
“Corporates do acknowledge that climate has an impact on their business, but they’re not sure how to respond,” de Weck told the Top1000Funds Fiduciary Investors Symposium at Stanford. “But we believe that, as events happen, corporates will start investing more and that gap will close, and that’s what we seek to benefit from.”
Pictet has made investments in companies like Xylem, which is a holding in its water investment strategy, and offers solutions that can help to manage large volumes of water and enable its efficient recycling at venues like sports stadiums. Then there’s Bentley Systems, which provides software for digitally modelling and inspecting infrastructure assets like dams to determine where stresses are occurring.
“The most important thing is to avoid losses,” de Weck said. “To avoid losses, you need to make assets more resilient.
“I think there’s a perception that investments in climate mitigation or adaptation are charity, but that’s not the case. These things have drivers behind then, and they’re supposed to achieve market-beating returns because of megatrends that mean these businesses will be favoured.”
The main reason that the $556 billion CalPERS invests in climate is to “generate alpha”, Peter Cashion, its managing director for sustainable investments, told the same session.
“We see climate as one of the megatrends, alongside AI and deglobalisation, and we see strong parallels with the technology revolution started 30-plus years ago,” Cashion said.
“Even though Silicon Valley is right there, [California pensions] weren’t early investors in that. Unfortunately, we’d probably be closer to fully funded at this point if we were.
“So in this climate revolution we want to be taking a leadership position in terms of identifying opportunities that we might otherwise miss, and that’s why we have a dedicated focus on it.”
CalPERS wants to have $100 billion invested in climate solutions by 2030. It’s coming up on $60 billion after starting from a base of about $47 billion just two years ago and sees potential climate investments as fitting into three categories: renewable energy, adaptation and transition.
“We’ve invested recently in a fire mitigation company that uses drones and AI to detect wildfires, as well as heat resistant crops… I would say that about 10 per cent of our investments in our portfolio are adaptation, and we expect that to grow,” Cashion said.
“We’re actually looking at some public equity strategies where the main focus is companies that are doing adaptation, because we anticipate higher growth there.”
Elizabeth Steiner, Treasurer of Oregon, said that, because the $100 billion Oregon Public Employees Retirement System (OPERS) represents almost the entirety of the state’s employees – and that the state’s political leaning can be best described as “purple” – there’s lots of different views.
“When we were thinking about this issue around climate resilience and climate positive investing, we had to take an approach that addressed the concerns of all of those constituencies. And that means, first of all, broad stakeholder engagement in the conversations,” she said.
OPERS’s stakeholders include six major public employee unions that “run the gamut” in terms of their interest in the topic. Steiner said some members would prefer the fund divest immediately and completely from fossil fuels. Others think the fund “shouldn’t even be talking about climate positive investments”.
“So we have to navigate through that, and we have to navigate through the legislature, and we have to navigate through the investment council, many of whom are concerned that if they go too far in one direction or another, there’s going to be litigation. So that’s a lot of navigation that’s required,” she said.
“[But] our conviction in Oregon is that to talk about environmental, social and governance investing is no different from talking about almost any other constraints that’s going to affect a company’s bottom line, right?” she said.
“If corporations are not taking into consideration the impact of climate change, for example, on their business model, then they are failing in their fiduciary responsibility.”
