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California Public Employees' Retirement System CalPERS

PRI reporting framework 2019

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You are in Indirect – Manager Selection, Appointment and Monitoring » Selection

Selection

SAM 02. Selection processes (LE and FI)

02.1. Indicate what RI-related information your organisation typically covers in the majority of selection documentation for your external managers

Your organisation’s investment strategy and how ESG objectives relate to it

ESG incorporation requirements

ESG reporting requirements

Other

No RI information covered in the selection documentation

LE

FI - SSA
FI - Corporate (financial)
FI - Corporate (non-financial)
FI - Securitised
Private equity
Property
Infrastructure
Your organisation’s investment strategy and how ESG objectives relate to it
ESG incorporation requirements
ESG reporting requirements
Other
No RI information covered in the selection documentation

If you select any 'Other' option(s), specify

Real Assets (Property and Infrastructure)

As stated in the Investment Policy for Responsible Contractor Program (https://www.calpers.ca.gov/docs/policy-responsible-contractor-2015.pdf), CalPERS has a deep interest in the condition of workers employed by CalPERS and its Managers and Delegates.  CalPERS, through the Policy, supports and encourages fair wages and benefits for workers employed by its contractors and subcontractors, subject to fiduciary principles concerning duties of loyalty and prudence, both of which further require competitive returns on CalPERS real estate and infrastructure investments. CalPERS endorses small business development, market competition, and control of operating costs.  The Policy applies to real estate or infrastructure investments in which CalPERS owns interest greater than 50 percent on contracts over $100,000.

Fixed Income 

No recent requests for proposals

02.2. Explain how your organisation evaluates the investment manager’s ability to align between your investment strategy and their investment approach

Strategy

Assess the time horizon of the investment manager’s offering vs. your/beneficiaries’ requirements

Assess the quality of investment policy and its references to ESG

Assess the investment approach and how ESG objectives are implemented in the investment process

Review the manager’s firm-level vs. product-level approach to RI

Assess the ESG definitions to be used

Other

None of the above

LE

FI - SSA
FI - Corporate (financial)
FI - Corporate (non-financial)
FI - Securitised
Private equity
Property
Infrastructure
Assess the time horizon of the investment manager’s offering vs. your/beneficiaries’ requirements
Assess the quality of investment policy and its reference to ESG
Assess the investment approach and how ESG objectives are implemented in the investment process
Review the manager’s firm-level vs. product-level approach to RI
Assess the ESG definitions to be used
Other
None of the above

ESG people/oversight

Assess ESG expertise of investment teams

Review the oversight and responsibilities of ESG implementation

Review how ESG implementation is incentivised

Review the manager’s RI-promotion efforts and engagement with the industry

Other

None of the above

LE

FI - SSA
FI - Corporate (financial)
FI - Corporate (non-financial)
FI - Securitised
Private equity
Property
Infrastructure
Assess ESG expertise of investment teams
Review the oversight and responsibilities of ESG implementation
Review how is ESG implementation enforced /ensured
Review the manager’s RI-promotion efforts and engagement with the industry
Other
None of the above

Process/portfolio construction/investment valuation

Review the process for ensuring the quality of the ESG data used

Review and agree the use of ESG data in the investment decision making process

Review and agree the impact of ESG analysis on investment decisions

Review and agree ESG objectives (e.g. risk reduction, return seeking, real-world impact)

Review and agree manager’s ESG risk framework

Review and agree ESG risk limits at athe portfolio level (portfolio construction) and other ESG objectives

Review how ESG materiality is evaluated by the manager

Review process for defining and communicating on ESG incidents

Review and agree ESG reporting frequency and detail

Other, specify

None of the above

LE

FI - SSA
FI - Corporate (financial)
FI - Corporate (non-financial)
FI - Securitised
Private equity
Property
Infrastructure
Review the process for ensuring the quality of the ESG data used
Review and agree the use of ESG data in the investment decision making process
Review and agree the impact of ESG analysis on investment decisions
Review and agree ESG objectives (e.g. risk reduction, return seeking, real-world impact)
Review and agree manager’s ESG risk framework
Review and agree ESG risk limits at athe portfolio level (portfolio construction) and other ESG objectives
Review how ESG materiality is evaluated by the manager
Review process for defining and communicating on ESG incidents
Review and agree ESG reporting frequency and detail
Other, specify
None of the above

If you select any 'Other' option(s), specify

Real Assets (Property and Infrastructure)

Willingness to accept CalPERS RI requirements, as outlined in Real Assets Sustainable Investment Practice Guidelines, such as:

1) Managers have, or will commit to have an investment process which incorporates an assessment of relevant long-term Sustainable Investment or ESG factors;  
2) Managers will incorporate relevant ESG factors and Sustainable Investment activities into reporting, and additionally:  Managers will annually participate in third party sustainability performance surveys designated by CalPERS.

Private Equity 

​See SAM 02.5 for additional information.

02.3. Indicate the selection process and its ESG/RI components

          review of implementation processes and portfolio characterisitcs
        

02.4. When selecting external managers does your organisation set any of the following:

ESG performance development targets

ESG score

ESG weight

Real economy influence

Other RI considerations

None of the above

LE

FI - SSA
FI - Corporate (financial)
FI - Corporate (non-financial)
FI - Securitised
Private equity
Property
Infrastructure
ESG performance development targets
ESG score
ESG weight
Real world economy targets
Other RI considerations
None of the above

If you select any 'Other' option(s), specify

Listed Equity

When selecting external investment managers, CalPERS reviews the following:

  • Firm's policies related to ESG issues
  • Firm's procedures for identifying, monitoring, mitigating and resloving ESG issues
  • Firm's process for integrating ESG factors into investment decision-making and ownership activities

Real Assets (Property and Infrastructure)

Willingness to accept CalPERS RI requirements, as outlined in Real Assets Sustainable Investment Practice Guidelines, such as:

1) Managers have, or will commit to have an investment process which incorporates an assessment of relevant long-term Sustainable Investment or ESG factors;  
2) Managers will incorporate relevant ESG factors and Sustainable Investment activities into reporting, and additionally:  Managers will annually participate in third party sustainability performance surveys designated by CalPERS.

Private Equity

​See SAM 02.5 for additional information.

02.5. Describe how the ESG information reviewed and discussed affects the selection decision making process.[OPTIONAL]

          Real Assets (Property and Infrastructure) Investment Review Process
Manager Selection

RAU staff scores each new investment proposal, utilizing a two-part standardized Manager Assessment Tool (MAT). This includes ESG specific criteria. After the initial screening (Phase I of the MAT), proposals selected for further review are evaluated in a second phase which includes a Due Diligence Questionnaire (DDQ). ESG questions are incorporated into the DDQ for Real Assets. Responses to ESG questions are included in the overall weighting and when evaluating prospective Managers and mandates. RAU staff will update the ESG questions, from time to time, given that the RAU Sustainable Investment Guidelines are dynamic and intended to evolve as industry best practices emerge.  Memorandums recommending Managers to the Real Assets Investment Committee will include discussion of Managers’ ESG practices and/or any ESG concerns uncovered during the due diligence process.


Global Equity  
Integration - CalPERS requires external investment managers to adhere to our Governance and Sustainability Principles, which incorporate responsible investing attributes. Many managers' processes incorporate systematic and explicit inclusion of environmental, social and governance factors into traditional financial analysis. The information is used to appropriately price ESG risks and opportunities in support of the investment decision.
In addition, as part of our Manager Expectation initiative, each asset class developed a set of draft Sustainable Investment Practice guidelines. The guidelines utilized common governance elements applied across the Total Fund, such as CalPERS Principles and Beliefs. The object was to ensure that sustainable investment considerations were appropriately included throughout the life cycle of investments by internal and external managers, including: selection, contracting, monitoring, and management.

All security selection decisions  are the responsibility of external managers.

Private Equity  

Private Equity Staff uses a customized screening process for all Private Equity fund investment proposals. This process includes a section pertaining to the General Partner's written ESG policy. The overall investment proposal score will help Private Equity determine whether to move forward to diligence the investment opportunity. ESG is considered with other investment factors necessary to reach an informed decision. The ESG item within the screening process consistently formalizes ESG in the assessment process. A manager's ESG policy, or lack thereof, will not exclude a proposal from moving forward to the formal diligence process, rather, it will be taken into account in the context of evaluating all relevant investment parameters.

As part of the due diligence process, Private Equity Staff: requests the firm's ESG policies, inquire about the way General Partners identify, monitor, mitigate and resolve ESG issues, understand how General Partners have previously identified and addressed meaningful ESG risks as well as opportunities in their portfolio, consider the General Partner's approach to incorporating ESG factors into investment decision-making and ownership activities, and ask for examples on how they engage portfolio companies on ESG factors, inquire about General Partner's procedure for identifying ESG related issues to investors, and request disclosure on any ongoing ESG litigation related to ESG issues. All of these topics are inquired about in the standard ILPA DDQ that has a dedicated section on ESG.

Final Diligence Reviews on new investments will include an ESG section. Material ESG issues may be discussed at the Investment Review Committee (IRC) before voting and final investment approval occurs. The discussion around ESG issues will depend on their relevance to a particular investment opportunity.

Before making an investment, PE group requires that the General Partner commits to filling out the quarterly ILPA Fee Reporting Template. This is an effort to improve transparency and promote better governance. It also ensures compliance with the new California AB 2833 legislation.
        

SAM 03. Evaluating engagement and voting practices in manager selection (listed equity/fixed income)

03.1. Indicate how your organisation typically evaluates the manager’s active ownership practices in the majority of the manager selection process.

Engagement

Review the manager’s engagement policy 1

Review the manager’s engagement process (with examples and outcomes)

Ensure whether engagement outcomes feed back into the investment decision-making process

Other engagement issues in your selection process specify

LE

Review the manager’s engagement policy
Review the manager’s engagement process (with examples and outcomes)
Ensure whether engagement outcomes feed back into the investment decision-making process
Other engagement issues in your selection process specify

03.2. Describe how you assess if the manager’s engagement approach is effective.

03.4. Additional information [OPTIONAL]

          CalPERS manages all its own engagement efforts with very limited input from external managers.
        

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