As global investors, fund managers and consultants discuss how climate change will impact their businesses and portfolios, collaboration between these groups is key.
And while the asset owners write the cheques, the growing importance of asset managers cannot be understated, as they bridge the gap between all parties involved, says Bill McGrew, portfolio manager for global equity corporate governance at the California Public Employees’ Retirement System (Calpers).
Asset managers are “extremely important”, as they represent pension funds’ voices, McGrew told attendees at the First Global Investor Forum on Climate Change in Hong Kong yesterday.
As they’re in touch with both the investment community and the companies themselves, they are “a very important communication link, especially for asset owners with no internal resources", he added.
Calpers, which oversees more than $200 billion in assets, has been looking at ways to invest responsibly for over 10 years, and has made significant progress in a number of initiatives.
McGrew pointed to the US Securities and Exchange Commission’s recent ruling that companies must provide full environmental, social and governance (ESG) disclosure which incorporates factors such as whether a company is engaging in sustainable, ethical and corporate governance issues.
This followed a tremendous effort on the part of investors meeting with government officials in Washington, DC for a number of years, McGrew said. He also cited a 2002 initiative by Calpers to put some $3.5 billion to work in clean technology companies via private equity funds.
However, McGrew cautioned that it will take years before the world feels the effect of today’s investments and decisions.
“Over time, the level of sophistication has improved [and] conversations have become deeper,” he said. “[But] what we do today, we won’t see the benefits. Hopefully the future generations will. It is incredibly difficult to change policy, and crazy to think it happens overnight.”
Despite a growing awareness by companies and governments globally on the effects of climate change, getting investors to put money to work in the area is still difficult, notes Donald MacDonald, trustee director of BT Pension Scheme in the UK.
“It’s loose change [that investors allocate to this sector],” quipped MacDonald, speaking on the same panel. "No, it’s not even loose change. It’s the fluff around the loose change.”
And while a shift towards cleaner energy is vital, the importance of fossil fuels cannot be overstated – MacDonald said the conference attendees “wouldn’t exist without the oil industry”, and added that BT Pension is by no means “anti-oil”.
But there is a noticeable shift as companies think of ways to move away from their reliance on fossil fuels – which, MacDonald pointed out, are in limited supply – to diversify their energy needs.
Meanwhile, when asked by an audience member if there would be a reverse in the seeming trend towards passive investment by institutions, MacDonald said that in fact BT Pension had been moving away from passive towards active investments for some time.
Index investing doesn’t allow the pension full control of which companies are in its portfolio, he noted. Having that control has become more important than ever to institutional investors, he said. In fact, his fund is likely to increase its investment in real assets and infrastructure in the future.
"In order to more directly influence and control portfolio construction, investors should move away from passive investing," an investment research executive from a large investment bank told AsianInvestor on the sidelines at the conference. "If investors wish to have a real impact, it is better to actively manage a portfolio, either through outsourced managers or direct investment."