Silicon Valley Insider: CalSTRS $750m Deal Lends Perspective on the ESG Shift

At Impakter, we’ve covered some incredible environmental and social-focused startups around the world. We have had a ground-level, front-row seat to the shift in the VC and angel-investor mentality where the return on investment is measured in more than profits, and now includes a holistic view of a company’s impact. But every now and then we need to take a step back and realign our perspective: understand some of the forces driving the larger markets that these startups hope to penetrate. Many of the deals we have covered to-date are just a drop in the bucket in terms of the global economy. Therefore, the deal we are highlighting this week, featuring CalSTRS – California State Teacher’s Retirement System – is a bigger drop in a bigger bucket and will help tell the story of the progress being made toward a balanced economy that embraces sustainability and impact. 

On June 26th, CalSTRS, selected three global equity investment managers to oversee the allocation of over $750 million dollars across non-US, ESG-focused strategies.

“ESG” is a blanket term in public markets to refer to environmental, social, and governance factors that are incorporated in a variety of ways in the overall investment strategy.  

“This is the culmination of a thorough and rigorous selection process that allowed us to identify proven industry leaders with expertise in integrating ESG analysis into investment decision-making,” CalSTRS portfolio Manager Brian Rice added. “We believe they will bring positive environmental and social as well as financial impacts to our portfolio.”

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CalSTRS is the largest educator-only pension fund in the world with a portfolio valued at $226 billion. Their Sustainable Investment and Stewardship Strategies portfolio, from which this $750 million was taken, is valued at $6 billion. 

This is just one example of a large institutional investor exerting their influence on public companies, setting the precedent for all companies that these factors will be considered from this point forward. They aren’t the only ones, the Wall Street Journal reported that in the first half of this year, US funds that consider ESG factors attracted a net $8.4 billion, higher than the previous record of $5.4 billion in 2018. Furthermore, Penserra, an institutional financial services firm in California reported that in 2018, 26% of all funds invested in asset managers like pension funds are directed toward ESG investment strategies. 

And many of us may remember State Street Global Advisors, who manages some $2.5 trillion in assets, placement of the infamous “Fearless Girl” statue in front of the Wall Street charging-bull to spark conversation around gender diversity on boards and management (which was just 21% in 2019 for Fortune 1000% companies). 

Let this serve as a signal to the current and future startup founders that while ESG-focused investment adoption is slow, progress is being made, and it’s being made at a scale much bigger than you may see in your day-to-day. Some of the largest portfolios in the world are shifting to make room for you. 

Week to week, we also keep track of the deals of other impact investments and sustainable companies. Here are a few deals that caught our eye:

• AeroFarm raises $100 million to grow vertical farms.
• Bridges raises £35 million for second pay-for-success fund.
• Rent To Own secures €1 million for equipment financing in Zambia.

In the Cover Picture: Black and white stock charts. Credit: Lorenzo from Pexels. 

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EDITOR’S NOTE: The opinions expressed here by Impakter.com columnists are their own, not those of Impakter.com.