2019's Most Responsible Investors

The Responsible Asset Allocator Initiative (RAAI) released its 2019 ranking of the most responsible asset allocators:

The study, developed in partnership with the Fletcher School at Tufts, analyzed 197 funds comprising $21 trillion in assets to identify 25 institutions that set a global standard for leadership in responsible, sustainable investing. This year’s ranking builds on the groundbreaking first release of the report under the auspices of The Bretton Woods II program at New America in 2017.

"The Responsible Asset Allocator Initiative provides a barometer of how the world’s largest financial actors are changing their behavior to address the planet's greatest challenges. The intense competition for inclusion on the 2019 RAAI Leaders List demonstrates that sophisticated investors are embracing a broader definition of fiduciary duty and, increasingly, adopting environmental, social and governance considerations into their portfolio decision-making," said Dr. Tomicah Tillemann, Chair of the RAAI program at New America.

“The world is shifting toward more socially aware and environmentally friendly investment practices and the RAAI Leaders and Finalists Lists highlight a powerful group of investors that are leading the charge. The responsible investing practices of these funds provide a benchmark of excellence for peers, potentially unleashing hundreds of billions of dollars to finance renewable energy, sustainable infrastructure, clean water, healthcare and education. Increasingly, the asset allocator community is recognizing that investing responsibly and sustainably is a better way to optimize returns, reduce risks, and identify opportunities for future growth, all while aligning portfolios with broader social and environmental concerns of stakeholders,” said Scott Kalb, Founder and Director of the RAAI at New America and Chairman of the Sovereign Investor Institute at Institutional Investor.

Researchers expanded the scope of coverage in 2019, evaluating 471 asset allocators and rating 197 of them, up from 121 ratings in 2017. The ten core principles for benchmarking funds remained the same, but the number of ranking criteria almost doubled, raising the bar for the 25 highest scoring funds that were selected for inclusion on the prestigious Leaders List. Funds ranked 26-50 were recognized as Finalists.

The list of top 50 funds that made the Leaders and Finalists list is available here and the RAAI Index is available here at the bottom of the page.

Below, you can view the Leaders List (in alphabetical order; * New addition to the Leaders List in 2019):

1. Alberta Investment Management Corp. (AIMCo) (Canada)
2. AP Funds (Sweden)
3. APG Groep (Netherlands)
4. Australian Super* (Australia)
5. British Columbia Investment Management Corp. (Canada)
6. Caisse de dépôt et placement du Québec (Canada)
7. Caisse des Dépôts et Consignations (France)
8. California Public Employees' Retirement System (CalPERS) (USA)
9. California State Teachers' Retirement System (CalSTERS)* (USA)
10. Canada Pension Plan Investment Board (CPPIB) (Canada)
11. ERAFP (Etablissement de Retraite Additionnelle de la Fonction Publique) (France)
12. Fonds de Reserve pour les Retraites* (France)
13. Government Pension Fund – Global (Norway)
14. Government Pension Investment Fund* (Japan)
15. Khazanah Nasional Berhad (Malaysia)
16. Strathclyde Pension Fund* (UK)
17. New Zealand Superannuation Fund (New Zealand)
18. Ontario Teachers' Pension Plan (Canada)
19. PensionDanmark* (Denmark)
20. PGGM (Netherlands)
21. Public Investment Corp. (South Africa)
22. RPMI Railpen* (UK)
23. UC Regents Investment Funds* (USA)
24. United Nations Joint Staff Pension Fund (Global)
25. Victoria Funds Management Corp* (Australia)

Interestingly, among the new trends observed in this year's rankings:

• Canada has the greatest number of funds on the list with five Leaders, followed by France and the US with three each
• AUM of the Leaders increased by one trillion dollars in 2019, rising to $5.9 trillion from $4.9 trillion in 2017, indicating that an increasing number of the world’s largest and most sophisticated investors are considering social and environmental risks when deploying their capital
• The total assets of the Leaders List funds are larger than the combined GDP of 145 countries and 44 times larger than the total loans and disbursements made by the World Bank Group in 2018

The fact that five large Canadian pensions made the Leaders List doesn't surprise me. What suprises me is that more large Canadian pensions didn't make this list.

For example, OPTrust and PSP Investments made the Finalists List (see here) but for some odd reason didn't make the Leaders List.

Having covered OPTrust's climate saavy project in detail, I can assure you its CIO, James Davis, and Katharine Preston, Director of Responsible Investing, have done incredible work bringing that organization to the forefront of responsible investing. You can read OPTrust's responsible investing report here.

The same goes for PSP Investments. Stéphanie Lachance, Vice President Responsible Investing at PSP, has done incredible work bringing that organization to the forefront of ESG investing, focusing on public and private markets. You can read PSP's Responsible Investing report here.

What else? I saw OMERS, HOOPP and IMCO made the RAAI Index too but I don't want to sound completely biased in favor of Canadian funds even if I see them very engaged with corporations on ESG matters.

Other large funds that made the Leaders List deserve to be there. In a recent investment committee, CalPERS's global equity investment director, Simiso Nzima, discussed how the pension fund is taking “a laser-like focus” in examining the records of companies in its $178.4 billion global equity portfolio towards addressing climate change, corporate board diversity, and compensation of top executives.

And CalPERS isn’t just engaging companies in its global equity portfolio on carbon emissions. It is also reviewing its own private markets portfolio, looking at its infrastructure, real estate, and private equity investments to ensure they have low carbon emissions. However, Beth Richtman, managing investment director of the CalPERS sustainable investment program disclosed at the March 18 meeting that obtaining results from private equity general partners has been difficult.

Richtman also said a scheduled 2020 report of the carbon profile of investments held by general partners in CalPERS’s $27.4 billion private equity program won’t be ready that year because of the limited information available:

“When you compare [the private equity data] to other asset classes, there are dozens of examples and a cottage industry of experts willing to help us sort through reported data, different methodologies for estimating and for then aggregating the [carbon] footprint at the total portfolio level,” she said. 

I don't see why this is the case. Most large private equity funds have come to accept they are either going to be part of the ESG solution or they will lose out in a huge way over the decades to come, so it's in their best interest to accommodate CalPERS and other large investors looking to obtain the requisite data they need.

With regards to its climate change initiatives, the Caisse de dépôt et placement du Québec (CDPQ) outperformed its target with the addition of $10 billion in low-carbon assets in 2018, prompting it to raise the target in 2020. It also managed to reduce the carbon output of investments in its portfolio by 10%, with 25% scheduled for 2025.

When I went over the Toronto CFA Society spring pension conference, I discussed how Stephen Kibsey, VP of Emerging Risks at the Caisse, shared a lot of interesting information. He mentioned the Caisse published its second Stewardship Investing Report, which provides an update on actions taken and concrete results it has obtained in 2018 on a variety of environmental, social and governance (ESG) issues.

Stephen also said everyone in his team had to go back to school to "learn the science of climate change" and he kept stressing the need to keep up-to-date with the science to really understand the risks and opportunities across public and private markets.

I think the Caisse is at the forefront of stewardship investing but others are catching up fast in Canada where I can assure you sustainable investing is taken very seriously.

In its 2018 Responsible Investing Report, OTPP's President and CEO Ron Mock had this to say about responsible investing (click on image):

Not surprisingly, Teachers' made RAAI's Leaders List this year. At the Toronto CFA Society spring pension conference, Barb Zvan, OTPP's Chief Risk & Strategy Officer, spoke about the progress being made with the Expert Committee on Sustainable Finance.

The final report should be coming out shortly and Barb and the Caisse's Kim Thomassin will be speaking at the CAIP Quebec & Atlantic Conference at Mont-Tremblant in late September. I'm sure they will discuss the findings and recommendations of their final report.

Anyway, take the time to read RAAI's 2019 report here, it is full of interesting information and it's good to see that global investors are taking responsible investing very seriously.

Below, former US vice-president Al Gore is on a mission to prove the business case for sustainable investment. In an illuminating exchange with the FT’s US managing editor, Gillian Tett, Gore outlines which market forces he believes are driving an inevitable sustainability revolution. But significant obstacles, including a risky $22tn carbon ‘bubble’, could potentially slow progress.

Second, Gordon Power, owner and CIO of Earth Capital recently joined BNN Bloomberg to discuss how his firm assesses potential opportunities in sustainable investing. I also embedded a clip on Earth Capital, a private equity firm totally focused towards sustainability, investing capital into growth, renewable energy and efficiency infrastructure opportunities.

I met Gordon and Geoffrey Briant in Montreal at the end of March and they were kind enough to provide me a copy of the book, The Trillion Dollar Shift. Gordon is an expert on sustainable investing and has been among the first investors to get into this area a long time ago.

Fourth, I embedded Part 2 of CalPERS's Investment Committee meeting from March 18, 2019. Take the time to watch this clip, it discusses their approach to sustainable investing (fast forward to minute 35 to see the discussion on sustainable investing).

Lastly, take the time to watch a video on BCI's approach to responsible investing. You can watch it here as it is not available on YouTube so I cannot embed it below. Good stuff, I think it's time BCI ramps up its social media presence and posts more interesting clips like this one.