CalPERS pushes for carbon disclosure to boost returns

Mapping a company’s carbon footprint, or the emissions it produces, is an important and growing part of portfolio analysis at CalPERS says Anne Simpson, senior portfolio manager and director of global governance at the $307 billion fund speaking at PRI in Person 2015, the annual conference for the UN-supported international network of investors working to put the six Principles for Responsible Investment into practice.

Carbon disclosure is no longer “a bewildering counting of molecules” at the fund, but an essential component with Simpson currently working on methodologies and models that it will begin to apply to its public equity allocation with the intention of rolling out across the whole portfolio.

“We would like to think this is going to be a critical part of our investment decision making process,” said Simpson.

However Simpson says a lack of underlying corporate information means CalPERS has to rely on proxy estimates to measure the carbon footprint of many of the companies in which it invests.

“We can’t model out of thin air. We need the information,” she says, arguing that carbon disclosure become a necessary part of corporate reporting for the investment community.

Raising industry awareness of the need for emissions disclosure is a first step.

“The first part of our work is around advocacy. We need a policy framework that will price in this externality. We need to be advocates for market reforms which will price this risk in a better way.”

She also urges asset owners to put pressure on companies to engage.

“We are the owners of these corporations. Our role as long-term owners is to ensure their strategies are in line with ours.”

Simpson believes that progress is being made in this area like proxy access in the US, whereby major shareholders in public corporations can make their own board nominations, however there is still a long way to go.

“It is right for us to nominate people to the board,” she says arguing that company directors and boards need “to be climate competent” and put pressure on their companies to generate “the data we need.”

As a basic first step she asks that companies complete CDP’s questionnaire, the not-for-profit that runs the global carbon disclosure system that shows investors how companies manage their environmental impacts.

“We call on our portfolio companies to complete the CDP questionnaire for their carbon and water use.”

Simpson also urges asset owners to push expectations among their managers, internally and externally.

Managers need to develop and use methodologies that incorporate a companies’ environmental practices.

Asset owners should requests data and modelling in their manager contracts and catalyse the change, she says. She urges for much more expertise in the area from managers.

“It shouldn’t be a mile wide and an inch deep,” she says “We should mobilise the resources and talent of our financial services industry to tackle these risk and opportunities.”

Simpson compares the 70 signatories to the Montreal Pledge, a commitment by investors to publicly disclose the carbon footprint of their investment portfolios on an annual basis with the 1,000-odd signatures to PRI.

“Asset owners and managers need to get behind this. We are breaking new ground but need the power of money behind it.”