Yesterday New York City took what it described as its “next major step” in its divestment plans, naming California based consultant Meketa Investment Group and BlackRock as advisors in the process.
But in that announcement the City also revealed that it has begun its search for investment managers to help double its investment in climate change solutions to $4bn by 2021 – fulfilling the commitment the City’s Comptroller Scott Stringer made in 2018.
Consultants will play a key role in here too.
In the ‘notice of search’ the Comptroller’s Office, on behalf of the City's five public pension pots, representing some $211bn in assets, announced it was looking to “identify and select” managers to run “Public Equity or Public Fixed Income portfolios that invest in climate change solutions”.
Five US-based investment consultants already used by the City’s pension funds will initially help by screening potential candidates against the City’s minimum requirements. They are Callan, Wilshire, NEPC, Segal Marco Advisors and Rocanton Investment Advisors, which was acquired by Goldman Sachs in April.
These consultants will then “conduct further quantitative and qualitative reviews” on the prospective managers, which will form the basis of written reports to the City’s Bureau of Asset Management.
Late last year, California-based investment consultant Wilshire saw off seven other bids – including one from Boston-based NEPC – to win a private markets ESG contract with the Office of the Rhode Island State Treasurer.
A “broad universe of investment managers” will be considered by the City, according to the notice. But it also stipulates that prospective managers “must demonstrate” an “ability and history of measuring and monitoring the portfolio’s exposure to climate change solutions”.
‘Climate change solutions’ are defined in the document as securities of companies that “generate over 50% of revenue” from “assets, technologies, projects, activities and services that provide mitigation, remediation, adaptation and/or resilience in relation to climate change impacts”.
This includes green bonds “issued by any company”.
Existing managers used by the City’s pension pots – which includes the likes of Blackrock, State Street and Baillie Gifford – “must” also participate in the procurement process if they want to be considered for the climate solutions mandates.
The City adds that it is not looking for a strategy based “solely on exclusionary screening of specific industries”, nor will it consider proposals that include:
- Products utilizing leverage
- Products based on derivative strategies
- Products based on Exchange Traded Funds (ETFs)
Contracts will be for an initial three years with the potential renew up to an additional six years.
The application deadline for investment managers is February 21. Evaluations and interviews will take place from May to September. The contracts are scheduled to start on February 1 2021.