2019 Industry Innovation Awards

ESG

CalPERS

Ben Meng, Chief Investment Officer
Ben Meng
Art by Nigel Buchanan

He’s been on the job less than a year as chief investment officer of the California Public Employees’ Retirement System (CalPERS). But Yu (Ben) Meng already has taken great strides in building on the $387.87 billion pension’s long track record in addressing climate change challenges and opportunities.

Meng, who started in January as CIO of the 1.9 million-member behemoth, has pushed for more corporate reporting on environmental. social, and governance (ESG) efforts, led efforts to incorporate ESG and climate change into investment decisions, and vigorously backed CalPERS’s commitment to engagement with fossil fuel companies, rather than divesting. He’s done so with his eye on achieving an annual return target of 7%. In the five years through January 2018, CalPERS made an annualized 6.3%.

Still, as a new kid on the block, Meng feels strongly that the credit for CalPERS climate-change actions belongs with the organization and his team, not with him. “I’m so proud of what CalPERS and the sustainable investment team have done,” he says. “We’ve been a global leader on many fronts.”

More Disclosure

One of Meng’s primary efforts since joining CalPERS has been to advocate for greater corporate reporting and transparency on ESG. To that end, CalPERS is working with policy makers and others to enhance disclosure requirements. “We want to ensure that as investors, we are getting the information we need to make a fair investment decision, including climate-related risks, strategy, and what companies are doing about it,” he says.

While he tries to spend most of his time in the office, in May, Meng attended the inaugural summit of the Taskforce on Climate-related Financial Disclosure’s TCFD Consortium. Held in Japan and hosted by Prime Minister Shinzo Abe, it brought together a variety of international organizations and other luminaries to highlight the importance of climate financial risk disclosure. “It was an educational forum with a lot of teeth to it,” he says.

In addition, together with Wellington Management and Woods Hole Research Center, CalPERS recently announced the launch of a new framework designed to help companies identify, measure, manage, and disclose the potential business effects of the physical risks of climate change (P-ROCC) due to everything from extreme heat to flooding. More accurate disclosure of physical vulnerabilities should help asset owners and investment managers better evaluate the ability of the companies they invest in to adapt to or mitigate such risks. In September 2018, Wellington, CalPERS, and Woods Hole Research Center first announced a collaboration to develop such a framework.

Meng and his team are working with scientists to understand areas in the portfolio with the highest concentration of carbon emissions. To that end, they’re measuring the carbon footprint of each asset class. The plan is to release the footprint of global equities in the first quarter of 2020, as part of a comprehensive report on engagement, governance, and advocacy efforts. The mapping of private assets should be complete within the next few years.

He’s also tackling analyzing real estate risks and opportunities. Consider the Real Estate Energy Optimization Initiative, part of an effort to systematically identify, implement, and track economically attractive opportunities to enhance portfolio returns and reduce emissions. The EO initiative aims to help mitigate the systemic risk of climate change to the real estate portfolio and more broadly to the total fund through energy cost savings. Plus, the initiative will help move the real estate portfolio towards carbon neutrality in cases where it adds value to performance.

Underlying Meng’s climate-related moves is a commitment to continuing CalPERS’ philosophy of choosing engagement with fossil fuel companies over divestment. “If you divest, you are walking away from the problem. You give the problem to someone else,” he says. “It’s the easier way out.” For Meng, that’s especially important for an investor as large as CalPERS. Divestment would mean losing an especially influential voice at the table.

Born in China, Meng came to the US in 1995 for a Ph.D. program in civil engineering at the University of California at Davis, then switched to a new financial engineering program at UC-Berkeley. He joined CalPERS in 2008 after stints at Morgan Stanley, Lehman Brothers, and Barclays Global Investors, becoming a US citizen in 2010. Then, in 2015, he moved back to China to be deputy CIO at the State Administration of Foreign Exchange (SAFE), China’s $3 trillion reserve fund. But when the CIO job opened at CalPERS, he decided to apply.

Meng’s plan to seek higher returns rest largely on private equity investment. While he recognizes that, as an LP, there’s just so much control he can exert over a fund’s climate-related actions, his due diligence on potential GPs includes identifying climate-related risks and mitigation, as well as opportunities. “In the transition to a low-carbon economy, we want to know how managers are identifying and capturing these opportunities,” he says.


Anne Field

ESG Finalists

  1. AP1
    Mikael Angberg
  2. Unitarian Universalist Association
    Tim Brennan
  3. Evangelische Landeskirche Bayern
    Christoph Flad
  4. GPIF
    Hiro Mizuno
  5. Mercy Investment Services
    Bryan Pini
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