A model of good money management embraces ESG. 

By Hank Boerner

We’ve commented here on “Universal Ownership,” which like the term “SRI” can have several meanings and dimensions, depending on the speaker (and those who hear her and interpret the words). I like the concept of UO as the communities’ monies, with funds contributed into the larger pool, partially and in the main by individuals and government, and other institutions, to be managed by independent fiduciaries with very clear duties and responsibilities for the ultimate beneficiaries. Think of pension funds (corporate and public sector), mutual funds, and endowments and the concept of monies being universally-owned.

Where did the money come from? An important factor – especially if it’s yours and mine that’s in the pool. Who is managing the money, and how well are they managing (or governing)? What duty of care are they exercising? Do they have the ultimate beneficiaries’ best interests in mind as they make decisions and take actions? The money pool is a “community of interests,” and since the money is the community’s, who benefits most – the money managers or the community members? Society-at-large?

Tough questions – no simple answers here – and applying this backward in time to the recent financial meltdown we could give a big, fat “F” for total failure to a number of formerly trusted fiduciaries who mismanaged and [some who] even systemically looted the system. 

Doing the Right Things for Owners: So who may be doing the right thing with OPM (other people’s money) these days? One set of candidates is the managers of the American state and city employee pension funds. Oh, yes, to be sure, many got seriously whacked in the meltdown and tens of billions’ of dollars disappeared from many fund treasuries as managers chased outsize market returns with more than outsized risks attached or inherent therein.

But we have some good news stories as well. One fund regularly in the spotlight is CalPERS – the California Public Employees Retirement System, the largest state pension fund in the USA, with more than US$230 billion Assets Under Management (AUM) as of 3/31. Like many things Californian, the dimensions of the community served are large: 1.1 million active and inactive public employees and their families and 500,000+ retirees are beneficiaries; CalPERS is also the largest medical purchaser (coverage for 1.3 million members). 

Good Governance – Signature Issue for CalPERS: For years, CalPERS has been a leader among institutional investors in demanding good governance policies and practices on the part of companies they invest the communities’ money in. A popular tool for other investors was the annual watch list published by the fund until recently, naming the specific short list of companies targeted for attention and action by CalPERS. Other investors would take the list and invest in the companies in anticipation of the positive actions of CalPERS’ pressure on boards and management (the list is discontinued).

CalPERS fund managers tended to stay away from “social” issues – the good governance focus was assumed to cover the sins and missteps of managements that other sustainable and responsible investors (SRI) were focused on. But over time CalPERS to its credit opened its activist investor umbrella to cover more issues. And so the good news recently was that CalPERS was implementing ESG commitments developed by key economic players sponsored by the Ceres coalition of investors, environmental organizations and public interest groups at the fund’s HQs.

Game Changers: Watch These Actions: Four commitments came out of an all-day planning meeting with leaders in labor, foundations, investment companies and pension funds sponsored by Ceres for CalPERS:

• By August CalPERS will complete its plan for integrating ESG into investment decision-making across public and private equity, real estate, fixed-income, inflation-linked commodities, infrastructure, forest lands and bonds.

• CalPERS will generate its first annual investment report in September detailing the “total approach” to be taken to integrate ESG objectives.

• The Ceres Roadmap for Sustainability will be integrating into CalPERS traditional and long-term efforts to improve corporate governance through engagement with investment staff.

• Collaboration with the state’s other large fund – California State Teachers’ Retirement System (CalSTRS) (and other institutions that are members of the influential Investor Network on Climate Risk (INCR) to encourage Russell 1000 companies to address climate, environmental and sustainability issues. (INCR is managed by Ceres.)

Each of these is a huge game changer – for many other investors (especially other public employee pension funds) and for corporate boards, executives and managers. Investor relations officers and CFOs can expect many more questions from asset managers hired by CalPERS and other institutions on ESG policies, practices and performance.

The investment managers seeking to manage CalPERS, CalSTRS and many other pools of “universal ownership” money can expect to be asked about their own ESG frameworks and policies toward SRI (and their SRI track records).

Corporate responsibility managers should be cheered: Here is the largest and arguably the most (or one of the most) influential of public funds and a powerhouse investor focusing intensely now on ESG as a key factor in its investments – across many classes of assets. The positive, most responsible response would be adoption of ESG and Sustainability initiatives across the corporate enterprise, reducing risk overall, and building sustainability into the DNA of the company. It’s win/win/win – for the beneficiaries of CalPERS; for the companies selected for the CalPERS portfolio; for society-at-large.

So this is my example of Universal Ownership at is most responsible, at its best. Watch closely now for other universal owners to tune in to CalPERS’ moves and adopt their own ESG frameworks.

About Hank Boerner

Hank Boerner is Chairman of the Governance & Accountability Institute in New York City and co-author with Mark W. Sickles of the book, Strategic Governance: Enabling Financial, Environmental and Social Sustainability (published 2011 by the Institute).

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