CCI Sustainability Stars - CalSTRS Kirsty Jenkinson sees sustainability investing as opportunity

(Marsha J. Vande Berg is CEO of MJVGlobal Insights, consulting to corporate and investment executives about sustainability, governance and political economies. As CEO of Pacific Pension and Investment Institute, she worked closely with global pension executives, particularly in the Asia Pacific. A Stanford Distinguished Careers Fellow, she teaches, writes for international publications and is a frequent forum and webinar speaker. Reach her on LinkedIn or Twitter.)

SAN FRANCISCO (Callaway Climate Insights) — Kirsty Jenkinson is CalSTRS’ director of sustainable investment and stewardship strategies, overseeing a $6 billion public equity sustainability portfolio of the world’s largest public educators’ pension fund. The market value of the CalSTRS Investment Portfolio was approximately $253.6 billion as of July 31.

We asked Jenkinson, who recently was named a NextGen2020 rising star by CIO magazine, about the challenges of investing to mitigate sustainability risk and pivoting to opportunistic investing in sustainability solutions, including adding real assets to her institutional portfolio.

The Scandinavian and Dutch pension funds are “light years” ahead when it comes to identifying investment opportunities that drive strong performance, create long-term value and also serve the purpose of supporting a sustainable global economy, Jenkinson said. U.S. pension funds are interested also in combining profit, purpose and impact and doing that in private as well as public markets, but the interest still is nascent.

Getting to the point where sustainability drivers create exciting return opportunities and measurable positive impacts means broadening relationships with strategic partners and external managers and expanding investments across asset classes, like infrastructure and real estate. It requires investment expertise and in-depth knowledge about how sustainability related factors, like climate change, can and will impact risk-return profiles. It also requires decisions about how optimally to track any positive ESG outcomes resulting from the allocation of capital.

Traditionally, so-called impact investing has meant purpose before profit. But that is changing as the two emphases converge. One of the first sustainable asset managers to succeed in profitable investing with purpose was Generation Investment Management (GIM), founded by David Blood and Al Gore. Today, GIM also invests in both public and private equities, combining money management for returns with stewardship, an approach that won GIM an early and sizable CalSTRS mandate.

CalSTRS supports long-term, patient capital deployed in private as well as public markets, taking a cue from the Scandinavians in investing opportunistically in sustainable private assets and then, closer to home, that of the University of California Regents endowment. The fund recently invested in 8Minute Solar, an innovative company in Los Angeles with a pipeline of large-scale solar and solar-plus storage development projects across California, Texas and the Southwest.

Our Q&A with Jenkinson:

How did ESG capture your attention?

Jenkinson: I started my career in a traditional financial role at Goldman Sachs but I left as I wanted to focus on what I thought would end up being a career in international development. I instead ended up at a U.K.-based asset manager that was pioneering ESG integration in the 1990s. It perfectly blended my fascination and recognition of the influence of the financial markets and my desire to leverage them to create positive economic, environmental and social change. I’ve been hooked ever since!

What would you like others to learn as a result?

Jenkinson: I’ve been constant in my belief that an understanding of ESG factors simply helps better position investment portfolios for the shifts affecting our global economy — so I’d love others to see it that way, too.

How do you explain the value proposition of sustainability investing?

Jenkinson: Our world is being reshaped by sustainability-related factors as our global population grows and rightfully demands higher standards of living. We have to find ways to use our resources more efficiently, decarbonize the economy — and it’s imperative we do so in ways that are equitable at the same time. These shifts create tremendous opportunities and some risks for us as investors.

What has to change if the sustainability movement is to succeed?

Jenkinson: I think it is already succeeding on one level if you look at the growth and success of multiple sustainable investment initiatives and funds. By example, the sector, if I can call it such, is attracting more and more highly qualified individuals with extensive expertise in finance, policy and technology. ESG data is far from perfect, but it’s improving. Global investors are collaborating both to define best practice and shift companies and policy makers to drive sustainable business practices. However, we’re still a long way off creating a truly long-term focused, sustainable global economy. Coordinated global policies which help set the rules of the game and create appropriate incentives are certainly going to be essential in crowding in more capital, at scale, to achieve our sustainability goals.