The word “sustainability” is often used to define something environmental. Colorado PERA’s investment professionals see sustainability as a component of investment stewardship, encompassing another important component used when investing nearly $49 billion on behalf of PERA’s membership.
In June 2018, PERA’s investment team released the Colorado PERA Stewardship Report, a comprehensive look at all the ways PERA incorporates the principles of ESG (environmental, social, and governance) stewardship to select, evaluate, and improve the PERA investment portfolio and strengthen the retirement fund.
In addition to environmental issues, the concept of global sustainability can encompass labor rights, executive oversight and corporate culture, and social impact, among many others. By examining how PERA’s investments may be exposed to these categories, PERA tries to identify which investments will provide the strongest long-term results for the fund, and thus for PERA’s members and retirees. “We don’t look one or two years down the road; we look 15 or 20 years, and concentrate on the long-term viability of a company’s business model” said Jared Goodman, a PERA senior equity portfolio manager. “We want to make sure our investments’ sustainability practices will drive strong long-term returns,” he added.
Making more sustainable and responsible investments has become a primary focus and concern for investors and investees alike in recent years. The number of sustainability-aligned investment strategies increased 14 times over between 1995 and 2016 as more consumers, corporate executives, and investors demanded them.
Organizations that deploy sustainability practices demonstrate considerable long-term productivity and resiliency. Consider the manufacturing firm that buys new equipment to meet its customers’ demand, produce lower carbon emissions, and provide a safer working environment for its employees. This firm is doing its part to protect air and water quality (and avoiding potential fines for environmental negligence) and increasing its workers’ safety and efficiency, all while enjoying the competitive edge the new equipment provides. Similarly, so-called “green” buildings have higher occupancy rates and lower energy costs, making them potentially strong long-term real estate investments.
Another way PERA’s investment stewardship focus helps improve performance is via corporate governance. The most direct way to do this is by influencing organizations, via engagement with their management and boards, to be more proactive in their ESG practices. Given that corporate fraud is estimated to cost the U.S. economy between $180 billion and $360 billion per year, there is ample need to ensure that corporate leadership is always acting in the best interests of its investors. By insisting on fair market practices, alignment between companies and their investors, and robust disclosure procedures, PERA can help promote changes and improve oversight in ways that can make these investments more successful in the long run. “We’ve always stressed corporate stewardship as part of our investment activities because it’s a sound strategy,” said Tara Stacy, a PERA investment compliance and performance analyst and a co-author of the Stewardship report. “This helps us get and stay ahead of the curve as these issues are increasingly highlighted,” she concluded.
For PERA, one more key piece of the stewardship puzzle is the contribution made to the state’s economy. In 2012, PERA introduced the Colorado Mile High Fund, which provides millions of dollars in investment opportunities for organizations that have a nexus to the Centennial State. (The entire PERA fund currently has more than $515 million invested in the state.) Colorado Mile High Fund investments are primarily private equity and venture capital investments, and they have produced encouraging results. As of December 31, 2017, PERA has sold three of six Colorado Mile High Fund investments since inception of the Fund, helping to achieve further gains for the total portfolio.
PERA will continue to evaluate opportunities for financial sustainability through the recognition of the importance investment stewardship makes to the goal of seeking the best risk-adjusted returns for the long-term sustainability of the Fund and the members PERA serves.
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