CalSTRS will encourage its active equity and fixed-income managers to incorporate climate risk into their investment analysis and corporate governance voting practices, confirmed by Ricardo Duran, spokesman for the $131.9 billion system.
The plans by the California State Teachers' Retirement System, West Sacramento, underscore “the need for each manager to have expertise in climate change and other sustainable investment analysis and to adapt their corporate governance voting practices to address climate risks,” according to a report issued today by Ceres.
However, CalSTRS also plans to continue using managers that don't incorporate climate risk analysis, Mr. Duran said in an interview.
“At this point, it's an engagement process,” Mr. Duran said. CalSTRS wants to impress on its managers the importance of including climate risk as part of their due diligence in their investment decision-making, he added.
Among other things, CalSTRS expects to contact and meet with its combined 50 equity and fixed-income managers, which run a total of $57 billion for the fund, Mr. Duran said. It plans to begin the engagement undertaking soon, although a timetable hasn't been set.
“Climate risk is a factor in long-term value, that's what (CalSTRS CEO Jack Ehnes) has said,” Mr. Duran said. “So climate risk ought to be looked at, not as the sole factor but as a contributing factor” in investment value. Mr. Ehnes is on the Ceres board of directors.
CalSTRS is a leading member of the Investor Network on Climate Risk, a group of more than 80 institutional investors overseeing a combined $8 trillion in assets, which asked for the report.
“As a long-term investor, CalSTRS wants to invest in well-managed companies that can address the physical risks of climate change and adapt to the changing regulatory and market realities of a carbon-constrained economy,” Mr. Ehnes said in the 52-page Ceresreport, “Investors Analyze Climate Risk and Opportunities: A Survey of Asset Managers' Practice.”
“Our asset managers need to ask the right questions and critically evaluate how companies are positioned so that we're sure that our investments will produce outstanding risk-adjusted returns for our members.” Mr. Ehnes said in the report.
Among the report's key findings, 71% of money managers surveyed do not factor climate risk into their investment analysis when they are not marketing a “green fund.”
The respondents in this category manage an aggregate of $4.5 trillion, more than half of the total of $8.6 trillion managed by the 84 managers who responded overall to the survey, the report said.
The survey results, collected in early 2009, highlight the lag of major financial markets to deal with climate change, even as strong state and national climate policies are being adopted globally,” Mindy S. Lubber, president of Ceres and director of the INCR, said in a statement about the report.
Ceres is a coalition of investors, environmental groups and other public interest organizations working with companies on climate change and other sustainability issues.