That is why the investment committee of the California Public Employees' Retirement System, Sacramento discussed including a refined and consolidated version of labor principles as part of the pension fund's investment policy, Taylor said. CalPERS would be starting with private equity managers, but the policy, if adopted in November, would roll out to all asset classes, said Peter Cashion, managing investment director, sustainable investments at the Sept. 18 investment committee meeting.
Private equity managers and their portfolio companies have battled allegations of higher death rates at nursing homes they manage, of child labor employed at portfolio companies and landlord abuses in their single-family rental portfolios. The proposed principles, which would be included in the Appendix to CalPERS' Governance & Sustainability Principles, include freedom of association and recognition of the right to collective bargaining, elimination of forced labor, effective abolition of child labor, assurance that the fund does not invest in companies with discriminatory policies, and support for a safe and healthy workplace.
For private market asset classes, the principles will be included in side letters with general partners when CalPERS makes commitments to new funds and side agreements with public market active managers, Cashion said.
Managers will be asked to acknowledge CalPERS' labor principles and periodically attest that they are aware of the principles and are "broadly in line" with them, he said.
But the devil is in the details. In an interview before the investment committee meeting, CalPERS officials declined to state what they would do to enforce its policy beyond engagement and monitoring.
During the meeting, Tamara Sells, associate investment manager at CalPERS, said that should there be a breach of labor principles, CalPERS executives would engage with the manager and possibly the portfolio company and monitor the situation, which can take weeks or months.
However, committee members asked what would happen if a manager breached the labor principles and did nothing to rectify the situation.
After repeated breaches of the principles, "at what point do we come to the decision that you're not our kind of people?" and not deserving of the money invested in the company or with the manager, asked board member Yvonne Walker at the investment committee meeting. How would CalPERS officials make managers and companies know that the labor principles are "not just pretty words on a paper," Walker asked.
"It is really difficult to say what action we would take (for a breach of the labor principles) because it is so case by case," Cashion said.