Private fund managers with immature approaches to ESG should expect plenty of dialogue from the California Public Employee’s Retirement System, according to comments from Nicole Musicco, the pension fund’s chief investment officer.
Musicco was talking at the Economist‘s online ESG and Climate Risk Week conference on the relative merits of divestment versus engagement. While the topic is more germane to listed investments, which dominated the discussion, Musicco was asked about the private markets context.
“What we can do is continue the education piece, and continue the advocacy… engaging with our partners, bringing to light why we think these issues are important, demonstrating that our capital follows our views on sustainable investing.”
“We do have the option to not participate in the private context… with general partners that are not cleaning up their own game, that are not coming along for the ride of being more transparent on their practices, or even just on the data that we know that they have and would be so helpful to share.”
Musicco’s comments were made at a time of increasingly hot debate around the concept of ESG in the US. Detractors see it as an ideological or political distraction from fiduciary duty; ESG supporters see it is an integral part of managing investment risk.
“We are trying to tackle this from a number of different angles under the idea that we are trying to solve issues that impact all of us,” said Musicco, “And as fiduciaries we need to continue to look though this risk-reward lens; that means it may preclude us from ultimately investing with partners that we don’t think are optimising the risk-reward equation, if you will. In the end it’s a vicious circle that will end up hurting them [some GPs] in the long run.”
Also on the panel was Joël Prohin, head of portfolio management at French investor Caisse des Dépôts. His response to the question of how “divestment or engagement” issues manifest in private markets was straightforward: “Very good question. In our case, we make a dedicated specalised due diligence on SRI issues prior to our investment in a fund. It is scores less than 5/10, we exclude it,” he wrote.