Colorado PERA’s mission is to promote long-term financial security for its members. This means PERA needs to understand changes within the economy and various industries that could affect the long-term financial sustainability of its investments.
These days, investors are paying more attention to environmental, social and governance (ESG) factors – and how they may affect investment performance – when making decisions about their portfolios. ESG factors can range from an organization’s impact on climate change to its corporate culture, all of which can affect an industry’s or business’ profitability.
PERA may consider ESG factors that pertain to financial sustainability when making investment decisions. By focusing on investments with business models that are poised for profitability, they have found some investments that also practice environmental stewardship.
For instance, PERA holds investments in a timberland manager that has preserved 460,000 acres of sensitive lands, and has sold 4.1 million tonnes of carbon credits. PERA directly invests in “green” real estate, including holding 635,393 square feet of LEED-certified property. PERA also invests in renewable energy, including more than $1 billion in companies that are producing renewable energy or targeting reduced carbon emissions.
PERA is even more active in promoting strong corporate governance. In 2018, the organization participated in more than 63,000 proxy votes around issues such as executive compensation or board elections that affect all stakeholders in a company, and PERA has long been a vocal advocate for shareholder rights.
These are politically engaged times, and some activists have called for institutional investors such as PERA to reconsider its investments in certain categories based upon political or personal considerations. Specifically, some advocates want PERA to withhold financing from firms that don’t meet their personal values (this is called divestment) or invest in firms because they do adhere to their values (this is called impact investing).
This kind of values-based investing might make sense for an individual, but can be problematic for a large institutional investor like PERA. PERA invests on behalf of 600,000 members; an investment strategy based on personal value systems might be expensive, yield lower returns, and be impossible to implement in a way that reflects every member’s personal beliefs. As a fiduciary, PERA’s highest priority must remain the stability of the Fund for all of its members. That’s why PERA’s board adopted a statement on divestment this year that says they will “oppose divestment efforts unless such opposition is inconsistent with its fiduciary duty, but will implement divestment mandates passed by the Colorado General Assembly.”
To read more about PERA’s approach to financially sustainable investing, check out their Investment Stewardship Report.