Trio of Pension Giants Takes on ESG Naysayers

CalSTRS, USS, Japan’s GPIF warn public companies and asset managers to adapt or die.

A trio of international pension giants is teaming up to throw the weight of their nearly $2 trillion in combined assets behind a fight against sustainable investing cynics.

Japan’s $1.57 trillion Government Pension Investment Fund (GPIF), the $252.4 billion California State Teachers’ Retirement System (CalSTRS), and the UK’s $89 billion Universities Superannuation Scheme (USS) are forming a partnership for sustainable investing to pressure companies and asset managers to integrate environmental, social, and governance (ESG) factors throughout their entire investment process.

In a salvo aimed at ESG investing naysayers, the heads of the three pension funds released a statement warning the world’s companies and asset managers to focus on the long term and incorporate sustainable investing into their corporate strategy, or else they won’t have anything to do with them. They said companies that fail to heed their call “are not attractive investment targets for us,” and asset managers that also fail to do so “are not attractive partners for us.”

The statement was signed by GPIF CIO Hiromichi Mizuno, CalSTRS CIO Christopher Ailman, and USS CEO Simon Pilcher.

“If we were to focus purely on short-term returns, we would be ignoring potentially catastrophic systemic risk to our portfolios,” the funds said in the statement, citing a Moody’s Analytics report that estimated that the global economic damage caused by the planet warming by 1.5°C over the next 80 years would be $54 trillion, and $69 trillion under a warming scenario of 2°C by that time.

“As asset owners with the longest of long-term investment horizons, more inclusive, sustainable, dynamic, strong, and trusted economies are critical for us to fulfill the responsibility we have to multiple generations of beneficiaries,” the funds said.

They refuted the notion that ESG investing is politically motivated and said that skeptics who continue to question the value of sustainable investing “should realize they are quickly becoming the minority,” and that “the evidence is not on their side.”

They cited an article in the Journal of Sustainable Finance & Investment that said a large majority of research in more than 2,200 studies shows a positive relationship between ESG investment and returns, and that approximately 90% of those studies demonstrate at least a non-negative effect on portfolios.

“Companies and asset managers who commit to sustainable value creation are not injecting politics into business, nor are they ‘virtue signaling,’” the statement said. “They are fulfilling their duty to us, and by extension, to the millions of families depending on us.”

The trio said companies and asset managers are increasingly recognizing that incorporating their impact on employees, society, and the environment into their company vision and strategy “is good business.”

They also said a growing number of companies are disclosing information in line with frameworks, such as those from the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB). However, they also said a lot of progress still needs to be made.

“Entrenched interests remain strong and resistance to change is fierce,” the statement said. “And in many regions, regulations that reflect a more long-term investment paradigm have been slow to evolve.”

The funds urged their partners and the companies they invest in to rethink their strategies and enhance their disclosures by using frameworks such as the TCFD regarding their interactions with stakeholders, society, and the environment.

“With companies acting as long-term value creators and investors acting as long-term value accelerators, together we can keep short-termism at bay and drive sustainable economic growth of our customers, beneficiaries, and society.”

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