Chief Investment Officer

Jagdeep Bachher took ESG as a category or box to check and expanded it into an organizational mindset for the University of California. The environmental, social, and governance consequences and risks an investment presents are fundamentally factored into all investment assessments.

“Organizationally, you can have a function that is ESG sustainability, but what we did was to basically make it part and parcel of the entire entity,” Bachher told CIO.

In November, the University of California
is set to formalize this mindset and include ESG
criteria as a fundamental consideration in its
investor policy statement. Along with fiduciary
responsibility, maximizing returns, and mini-
mizing risks, “We’re adding a fourth objective,
which says incorporate ESG risk factors with
equal weighting as to other things we evaluate in
our investment decision-making,” Bachher said.
“That would make us one of the very few—less
than a handful—of institutional investors in the
world that has gone that far.”
But understanding the risks ESG presents is
already central.

Bachher points to utility companies to illustrate how ESG plays into fundamental investment analysis. Utilities are popular among asset owners for their yield-generating capacity. The prospect of income can keep many investors from turning a blind eye to their energy source. “Some investors just say ‘I’m just going to invest in these things because it checks the boxes. I don’t care how dirty it is… because it’s a good asset,’” he said.

But determining the sustainability of the
power source—whether because of technolog-
ical disruption, or shifting social attitudes—is a
integral part of the investment process for Bachher.
While coal is still dominant in many emerging
economies, “in places like America, we may not
necessarily want to invest in a coal plant,” Bachher
said. “So, when you look at either a bond that’s
issued or the stock of one of these companies, or
even a private investment as an infrastructure
asset, it’s a real issue.”
Researching and funding technology solu-
tions to address climate is another innovative
strategy the University of California uses to
address ESG. It’s the only institutional investor
that is a signatory to Bill Gates’ Breakthrough
Energy Coalition, whose mission is to accelerate
clean energy solutions; and it frequently invests in
technology of all stages and venture capital funds
for renewable energy.

The inspiration for not thinking about ESG separately and stitching it into the organizational fabric came from former vice president and high-profile environmental advocate Al Gore.

“I was taking the traditional approach three
years ago,” Bachher said. “I had posted a job that
was called director of sustainability.”
But in informal conversations, Gore convinced
him the approach would backfire. “He basically
said, ‘Look, if you make this a policing function
and you have a separate entity, people will always
be worried. You just have to satisfy the ESG depart-
ment,’” Bachher said. “But if you made this what
everybody is doing and includes in their framework,
then it has a chance of being much more sustainable
in the longer term.”
The result? “I ripped up the director of
sustainability job description, and I said we’re just
all basically going to live this.” —Vishesh Kumar