Responsible Investments Add to the Bottom Line
by Jack Ehnes, CalSTRS CEO
As an educator, you understand the value of handing down to our children a world where the earth’s resources are used wisely, people are treated humanely and corporations are run openly.
Maybe you, like many other Californians, would like your pension system’s investments to reflect that world view.
Is it possible for CalSTRS to focus on the bottom line and make investments that are environmentally and socially responsible—that follow tenets of good corporate governance?
The answer is: Yes, it is possible, and we do exactly that.
Making money and making investment decisions based on environmental, social and governance criteria may feel like opposing objectives, perhaps because that’s been the traditional way of thinking. However, there’s a new way to think about wise and profitable, long-term investments. It recognizes a direct link between environmental, social and governance practices and investment performance and risk.
Let me tell you what smart investors know. Consumers increasingly demand that corporations take positive steps toward a clean environment, workers rights and fair business practices. Consumers aren’t alone in their demands. Insurers have begun weighing the risks of businesses that continue to operate in the same old way. To remain profitable, companies must change and deliver.
Pressures placed on corporations have made institutional investors like CalSTRS appreciate the importance of and act to establish responsible investing.
But here’s an important distinction that separates CalSTRS from some other investors: As a long-term investor, we don’t trade away our disappointment in poor performers. Instead, we engage corporate management to seek a change in behavior, and we work toward rehabilitating the health of assets in our portfolio.
You may hear calls to divest—especially in response to various geopolitical, environmental and social abuses around the world. We hear those calls, too. However, our first duty is a fiduciary responsibility to you and the Teachers’ Retirement Fund.
We cannot make divestment decisions that would undermine the security of the fund. Our investment portfolio is a unique and highly diversified mix. CalSTRS expects corporations whose securities we own to recognize the role shareholders play in their governance and meet high standards of conduct in their operations, which in the long-term, will result in superior investment performance.
We don’t select or reject investments based solely on geopolitical and social risk factors. Those factors are considered if they bear on the financial stability of the investment.
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