California pension funds and policymakers have a road map for integrating climate change risk and other ESG considerations into their investment decisions, thanks to a partnership between the U.N.-supported Principles for Responsible Investment and UC Berkeley Law's Center for Law, Energy & the Environment.
The California road map released Tuesday offers 40 recommendations in seven environmental, social and governance categories, with a focus on climate change. Top recommendations include convening a state task force on ESG in investment and mandatory climate-risk stress testing for financial institutions.
For the state's public pension funds, the road map recommends developing governance structures that encourage long- term and data-driven ESG investment decisions.
Dave Jones, director of Berkeley law school's Climate Risk Initiative, said that many of the state's public pension funds, including the $262.5 billion California State Teachers' Retirement System; $411.5 billion California Public Employees' Retirement System; $58.2 billion Los Angeles County Employees Retirement Association; $28.4 billion San Francisco City & County Employees' Retirement System; and $19.4 billion Los Angeles City Employees' Retirement System have been leaders in developing sustainability policies, and the roadmap's recommendations can help other public pension funds that haven't addressed them. "It is part of their fiduciary duty" and the road map can help them make better decisions, he said in an interview.
"There is a pathway to ESG integration for any sized fund," said Ophir Bruck with PRI's 21st Century Project, in the same interview.
The roadmap also offers recommendations for corporate pension funds and financial institutions licensed in California, as well as regulators and agencies involved in investments such as infrastructure bonds. For example, "There are ways the legislature could require new investments (to) report the ESG impact of those bonds," he said.
"One of the challenges investors have ... is getting data about the physical and transition risks (of climate change). It would also be useful to have corporations disclose its impact on their operations," said Mr. Jones, a former state insurance commissioner and legislator.
"We are seeing a lot of leadership from corporations. What we are needing is standardization," he said.