Johnathan Walker:New York’s Giant Pension Fund Doubles Climate-Smart Investment

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America’s third-largest public pension fund is ramping up its climate-savvy investments, New York State Comptroller Thomas P. DiNapoli announced to global finance leaders on Wednesday.

The fund, a huge and influential investor, plans to double its stake to $4 billion in a portfolio of companies that disclose and seek to lower their emissions of global warming pollution.

“We’ve particularly been concerned about how we can address the issue of climate risk and benefit our portfolio,” DiNapoli said, speaking at the Investor Summit on Climate Risk, where money managers called for investors to face up to the risks of climate change and to accelerate action to fight global warming.

As the summit was underway at the United Nations on Wednesday, the UK Government’s Met Office published an ominous new five-year forecast that adds urgency to the investors’ climate concerns: Annual global temperatures could reach 1.5 degrees Celsius above pre-industrial levels within the next five years, the Met Office warned. The aim of the Paris climate agreement is to prevent warming from getting much beyond that level.  

The $2 billion in additional investment DiNapoli announced will go into a low-emissions index fund that New York’s Common Retirement Fund created in 2016. While the low-emissions index fund—which has had an annualized investment return of 16.5 percent—represents just a fraction of the pension fund’s more than $200 billion in assets, DiNapoli said he hopes to continue to grow the low-carbon portfolio.

The special climate fund is based on a traditional index fund made up of leading corporations, except that it weights its investments by considering whether the companies disclose their carbon footprints and act to reduce them.

Shareholders Push for Risk Disclosure

DiNapoli is one of several powerful officials from the city and state of New York who have sought to pressure fossil fuel companies and influence their investment and risk management practices. The city has launched litigation seeking to recover climate damages and pledged to divest its pensions funds from fossil fuel producers, and the state’s attorney general has been in a long fight with ExxonMobil on its climate record.

Corporations have come under increasing pressure in recent years to better disclose the risks they face in a future of rising temperatures and greater restrictions on greenhouse gas emissions. DiNapoli’s office helped lead a resolution approved last year by Exxon shareholders that requires the oil giant to report on those risks annually.

Disclosure was a common theme at the summit, which was hosted by the United Nations Foundation, the UN Office for Partnerships and Ceres, a nonprofit that promotes sustainable investment.

“If you are not a climate-aware investor, then you are fundamentally not doing your job,” said Brian Deese, global head of sustainable investing for BlackRock, a leading investment firm. As the world works toward achieving the Paris climate agreement goals, he said, companies that are already grappling with this challenge are better positioned for long-term growth. The only way for investors to assess this, he said, is with better disclosure.

In December, BlackRock called on about 120 corporations in energy, transportation and other industries to report on climate risk. Earlier this month, the investment firm’s chief executive, Larry Fink, reminded corporate leaders that social responsibility has become a critical element of any company’s financial success.

Enabling Clean Energy Growth

Much of the discussion on Wednesday focused on the key role that finance will play in enabling nations to slash greenhouse gas emissions in line with the Paris climate pact.

“Governments need to know that their financing element, if they really engage in the Paris Agreement, is going to be delivered,” said Patricia Espinosa, executive secretary of the UN Framework Convention on Climate Change.

Lisa Jackson, who led the EPA under President Obama and now heads environment, policy and social initiatives for Apple, spoke about the role of private money in expanding renewable energy. Apple, whose servers use lots of electricity, has committed to powering all of its operations from renewables.

Even as many leaders spoke optimistically about this clean energy transition and the financial sector’s growing role, Sharan Burrow, general secretary of the International Trade Union Confederation, called it “a disgrace” that few governments are helping to retrain workers in the fossil fuel industry who stand to lose their jobs.

“So your work is critical. If we don’t get that right in fossil fuels as the shift is now on,” she said, “then we’re going to leave a lot of stranded workers and communities.”