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CalPERS: ‘We’re in the world of estimates and guesstimates’

The LP’s head of board governance and sustainability discusses the ‘eureka moment’ CalPERS had in narrowing decarbonisation efforts on heavy emitters.

Investors should focus decarbonisation efforts on their portfolio exposure where they have the best understanding of high-emissions assets to account for incomplete environmental measurements, according to CalPERS’ Anne Simpson.

“Focus where it matters. Pay attention to where you can make a difference,” Simpson, who leads board governance and sustainability at the California pension investor, told New Private Markets during a video interview.

Watch the full version of our interview with Anne Simpson here.

Climate Action 100+ is an investor-led group representing more than $60 trillion of managed assets that seeks to pressure the world’s largest corporate greenhouse gas polluters to reduce their emissions.Simpson said that “a eureka moment” during CalPERS’ ongoing efforts to reduce carbon emissions from its $480 billion portfolio occurred when the LP zeroed in on 100 companies out of its 10,000 holdings that were responsible for 85 percent of total emissions. Along with a more focused approach to decarbonisation, she added, that finding helped spur CalPERS’ participation in launching the industry initiative Climate Action 100+ in 2017.

As a growing number of investors seek data measuring their portfolio’s GHG emissions to evaluate environmental and financial risks, a problem many of them are encountering is an uneven and incomplete level of disclosure from their asset managers and portfolio companies. While various industry frameworks have been created to help private markets investors aggregate data, the industry is still approaching the integration of emissions reporting using largely unstandardised processes.“Our strategy at Climate Action 100+ is, we’re looking at 11 sectors and making sure that not just the supply is what’s brought down, but we are bending the demand curve down,” Simpson said. “But we’ve got to do it in a way that these companies get ready to make the transition and use their energy resources themselves.”

“We don’t yet have the data and corporate reporting that allows us to understand fully in a standardised, verified, timely manner where emissions are coming from,” Simpson said. “We’re still in the world of estimates and guesstimates.”

CalPERS joined private equity firm Carlyle and a group of investors and asset managers in September to partner on standardising the measurement of ESG data. The initiative seeks to set best practices for reporting emissions, renewable energy, board divesrity and other metrics.

She added: “The ambition here is that we can appraise risk and opportunity across the total portfolio… the information piece is evident and obvious. It’s necessary for us getting to [our] net zero target.”

Watch the full version of our interview with Anne Simpson here to hear her discuss other environment-related investment topics, including the risk-return profile of evaluating GHG risks and the problem greenwashers represent to private markets.