In the first of a series of four articles, Joy-Therése Williams and Alicia Seiger of the New York State Common Retirement Fund’s Decarbonization Advisory Panel present an overview of the panel’s work. Further articles will look at first steps and minimum standards while the final piece will reflect on the need for education and positive engagement.
The third largest US pension plan, the $207 billion New York State Common Retirement Fund (NYSCRF), has a laudable track record of climate leadership with significant investments in low-carbon products, an exemplary shareholder engagement program, and a strong history of advocating for climate issues. But as the economic destruction from climate change impacts are becoming ever clearer, the more that the one million members in the NYSCRF need bolder action to protect their pensions.
With this backdrop, the NYSCRF convened the nation’s first ever Decarbonization Advisory Panel (DAP). State Comptroller Thomas P. DiNapoli, the sole fiduciary of the NYSCRF, and New York Governor Andrew Cuomo, convened the six-member panel last year. We were charged with recommending how to prepare the NYSCRF to identify and manage the risks of a changing climate and capitalise on opportunities in the transition to a low-carbon economy.
The six of us, experts in fields of sustainability, finance, climate change, and fiduciary duty, set out to provide advice that would not only serve beneficiaries in New York state, but could also be adopted by other pensions and investors. The recommendations are ambitious and can be daunting at first glance, but we believe they are a better path than legislated divestment or even a divest-invest strategy.
Our report was released on April 16, 2019 and offers a holistic approach to managing climate change in a large, global investor. We presented a set of foundational beliefs that build a solid investment business case for bold action on climate change, then we offered a Key Ambition, a First Step and a suite of supporting recommendations. The recommendations are designed to be a flexible set of tools investors of all sizes would find useful. These tools can be brought into play by investors as their resources and priorities allow, though for reasons we made clear, action should be taken with urgency. Creating climate resiliency is a journey that must begin sooner rather than later.Our foundational beliefs included: 1) climate-related physical impacts interact with investments, 2) the transition to a low-carbon economy is well underway, 3) both physical and transition events create risk, and 4) opportunities to capitalize on climate change mitigation and adaptation exist and are poised to grow dramatically.
For some, climate-related impacts are risks eroding or eradicating value – the recent bankruptcy of PG&E is a case in point and the collapse of coal companies in the stock markets is another. For others, there will be investment opportunities as solutions are found in the form of new technologies, services and systems.
A key belief that set the tone of our consensus report and drove our recommendations was that climate change is a macro-disruption phenomenon. The panel believes climate change will fundamentally change the economic systems in which we invest.
Both climate-related physical events and disruptions from transitioning industries create investment risk and opportunity exposure across multiple sectors, geographies and professions. While the transition might appear first in energy-related arenas, it is not confined to fossil fuel companies. Climate effects will impact physical assets in vulnerable areas like coastlines, supply chains of nearly every company, and disrupt demand in industries far removed from energy.
If each manifestation of climate change as described above is viewed as a discrete event or a series of discrete risk factors, we will only make incremental changes to how we invest, feeding the status quo. That status quo is woefully unprepared for both climate risks and opportunities.
To foster new thinking, our key recommendations were to urgently carve out a portion of the portfolio to proactively invest in climate solutions and for the fund to be 100% invested in sustainable assets by 2030. Combined, these two actions address risk across the portfolio and build a level playing field for climate-friendly investments.
Our primary calls to action were backed by a set of supporting recommendations that leveraged existing actions and relationships of the NYSCRF, challenged business-as-usual, and provided flexibility needed to grow ambition over time.
Joy-Therése Williams is Senior Advisor, Mantle314 and Decarbonization Advisory Board Chair. Alicia Seiger is Managing Director, Stanford University Sustainable Finance Initiative and a Decarbonization Advisory Panel Member.
Joy Williams is speaking at the RI Europe 2019 conference on June 11/12, London as a moderator on the following panel:
Sustainable infrastructure: new policy foundations and investment plans
• Why is sustainable infra an opportunity?
• Governments and cities step up on long-term, green infra.
• How infra fund managers are evolving their funds to meet the transition and demand.
• Heidi Finskas, Vice President, Corporate Responsibility and Corporate Governance, KLP Kapitalforvaltning
• Harold D-Hauteville, Head of Infrastructure Equity, Europe, DWS