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World’s Largest Allocators Tackle Social, Environmental Issues

A study of 50 institutional investors found asset owners are increasingly confronting challenges beyond securities returns.

Investors including PGGM, the New York State Common Retirement Fund, and the California State Teachers Retirement System (CalSTRS) are leveraging their funds to address global systemic risks, according to a report by the Investor Responsibility Research Center Institute (IRRCi).

The study examined how 50 asset owners and managers have increasingly factored challenges such as financial system sustainability, climate change, and human rights issues into portfolio-level investment decisions.

“Investors are intentionally confronting global environmental, social, and financial systems challenges in a way that makes financial sense,” said John Lukomnik, executive director at IRRCi. 

According to the report, both asset owners and managers most commonly addressed these risks by integrating ESG factors directly into their investment processes. Additionally, more asset owners than managers sought to create long-term value through this systemic lens while more asset managers saw opportunities in impact investing than allocators.

Furthermore, the desire to reduce risk and gain financial returns drove both asset owners and managers alike in seeking to impact global challenges through their investments, the report said.

New York’s pension, for instance, has focused on social issues such as affordable housing, local business development, and diversity. Last year, the fund worked with Goldman Sachs to create a low-carbon equity index fund to which it has allocated $2 billion.

Likewise, CalSTRS allocated $2.5 billion to an MSCI low-carbon index fund this past July. CalSTRS has also worked with sustainability non-profit Ceres to question 45 fossil fuel companies about their strategic plans given various energy and climate scenarios. 

PGGM, the second-largest pension manager in the Netherlands, has allocated a multibillion dollar portion of its assets to a “solutions” portfolio focused on climate change, food security, health care, human rights, and financial system stability, among other issues.

Other examples cited in the report include the Ireland Strategic Investment Fund, which invests in enterprises “designed to support economic activity and employment in Ireland,” and the Caisse de dépôt de Québec, which has invested in Montreal's public transportation system, as well as downtown office buildings and hotels.

“A lot of work is left to be done to better understand the complex relationship between systems and portfolios,” said William Burckart, who co-authored the report. “But, this study demonstrates that institutional investors, whether implicitly or explicitly, understand that the world is becoming increasingly interconnected.”

The full report is available here.

Related: APG, PGGM Bolster Sustainable Investing Efforts

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