• Pension funds representing about $2 trillion in assets under management are committing to sustainability investing
  • The move brings some of the world’s largest asset owners into the ESG movement, joining fund managers, companies and governments
  • Pension funds’ ESG commitment highlights focus on the long term even during the current market meltdown due to coronavirus 

Three of the world’s largest pension funds are taking a $2 trillion stand in favor of sustainability investing.

The leaders of Japan’s Government Pension Investment Fund, the California State Teachers’ Retirement System (CalSTRS) and the U.K.’s USS Investment Management Ltd. say that their “multidecade framework” requires them to invest with sustainability and social impact because, after all, retirement funds by their very nature are playing a long game.  

Ignoring issues such as climate change to maximize short-term returns would create “potentially catastrophic systemic risks” to their portfolios, the heads of the funds said in a statement. They cited a figure from the Intergovernmental Panel on Climate Change’s 2018 report that indicates climate change alone may destroy $69 trillion in global economic wealth by 2100.

The firms wrote they aren’t interested in investing in “companies that seek to maximize corporate revenue without considering their impacts on other stakeholders — including the environment, workers and communities. They also took aim at short-term-focused asset managers, saying they “are not attractive partners for us.”

The impact of a sustainability commitment from asset owners — as opposed to fund managers, governments and companies — may be profound, as they represent the interests of workers around the globe.

GPIF is the world’s largest asset owner, with about $1.69 trillion under management. CalSTRS, the world’s largest educator-only pension fund, has about $246 billion under management, and USS, the U.K.’s largest private pension scheme, has about $89 billion.  

The letter was signed by GPIF CIO Hiromichi Mizuno, CalSTRS CIO Christopher J. Ailman and USS CEO Simon Pilcher. Two more big asset owners joined after the letter was issued, according to The Financial Times: The U.K. pension fund Railpen and the British Columbia Investment Management Corp.

“We are committed to those companies that create value for us over the long term,” according to the joint statement. “We appreciate that many multinational firms often find themselves under excessive pressure from the market to deliver on short-term goals, making it difficult to protect their long-term corporate vision. As asset owners, however, we strive to act as stewards of long-term capital, creating sustainable value by supporting companies with a clearly defined, long-term vision for growth.”

The move is also significant because it was issued under the leadership of GPIF. Asia historically has lagged Europe and the U.S. in socially responsible investing, though a report from SYZ Group last month indicates that Japan may be closing the gap. Many analysts give Mizuno much of the credit for the shift in sentiment.

In a December interview, Mizuno came out strongly against short selling, saying that protecting the planet doesn’t jive with a short-term mindset. He issued a revision to the fund’s stewardship principles last month. While the document mostly outlined things like GPIF’s corporate governance structure and conflict of interest policy, it included a section called “ESG Integration into the Investment Process.” And GPIF’s “investments in green, social and sustainability bonds reached over $3 billion last year,” according to a post on Twitter in January.

In the statement, the funds said their responsibility to their beneficiaries requires “inclusive, sustainable, dynamic, strong and trusted” economies and noted that climate skeptics are rapidly becoming a minority.

“Rising temperatures and shifting precipitation patterns will affect agricultural production and universally hurt worker health and productivity,” according to a Moody’s Analytics study cited in the statement. “More frequent and intense extreme weather events will increasingly disrupt and damage critical infrastructure and property. And sea-level rise will threaten coastal communities and island nations.”