Asset owners benchmarking their carbon footprint against market indices risk measuring themselves “against going to hell in a handcart”, the California Public Employees’ Retirement System (CalPERS) has warned.
Anne Simpson, director of global governance at the $288bn (€257.4bn) public pension fund, said a relative assessment of a portfolio’s carbon footprint told investors “nothing useful”.
Investors should focus instead on creating portfolios that ensure global warming remains below or on target – the 2C increase viewed as tolerable by scientists.
She told the PRI in Person conference in London that measuring the carbon output of portfolios might make some investors feel “virtuous”.
But she said it risked missing the ultimate goal of staving off climate change if all that is examined is a portfolio’s relative carbon underperformance compared with market indices.
“Where the index is and where the market is – we are all going to hell in a handcart,” she said. “Measuring ourselves against going to hell in a handcart isn’t actually going to help us as fiduciaries.
“The investment industry has been bedevilled by the false god of relative performance, and we might be slipping into that with carbon footprinting.”
Simpson said it was important to look at how the 2C target modelled by the International Energy Agency could be brought about, noting that it would involve improvements to energy efficiency, a certain increase in renewable energy usage and a decline in the usage of fossil fuel over a 30-year period.
“Now that’s the game,” she said, “[and] that’s the game we need to be playing. Thinking about how is our money lined up with that 30-year trajectory.
“We need to make sure we are set true on the ultimate objective, which is making sure our capital is deployed to that 30-year trajectory in which we expect to reap rewards because we will be decking our capital to the opportunities.”
She added: “Intellectually, we need to be realising it’s just a first step with our footprints – and where we want to head with our work is actually not just measuring for measurement’s sake.”
CalPERS was one of the founding signatories of the Montreal Carbon Pledge – together with ERAFP, AP4, the UK’s Environment Agency Pension Fund and others.
The Pledge was unveiled at last year’s PRI in Person with the aim of reducing the carbon output of its members.
The initiative has so far attracted approximately 70 signatories, far short of the PRI’s 1,378 signatories, which Simpson lamented.
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