The New York Common Retirement Fund, the third largest pension fund in the US, has teamed up with Goldman Sachs Asset Management on a new $2bn low carbon index as part of an expanded sustainable investment commitment at the $184.5bn fund, which is overseen by New York State Comptroller Thomas DiNapoli.
The new index will exclude or reduce investments in companies that are large contributors to carbon emissions like the coal mining industry, and increase the fund’s investments in companies that are lower emitters.
The index will be modeled after the fund’s existing indices, which are passive investments in US companies with returns that match broad market performance. The new index, to be internally managed by the fund, will be weighted toward companies with lower emissions that have comparable earnings.
“It will reduce the fund’s carbon emissions footprint, without risk to the fund’s returns on investment,” the fund said.
The low emission index will “eliminate or underweight” some of the worst greenhouse gas emitters based on independent emissions data reported to environmental data body the CDP. The new commitment will reduce the emissions profile within the index by up to 70%, it is claimed; money for the index will come from the fund’s existing index holdings.
DiNapoli, who oversees the fund as trustee, made the announcement at the COP21 event in Paris today (December 4), saying: “Low-carbon, sustainable investments are key to our future.” He went on: “Our pension fund has long-supported climate aware strategies, and this expansion of our commitment offers a sensible solution that will protect the fund’s investments.”It was an approach that could be expanded across all asset classes and “help spur the kind of innovation and ideas that will assist in the transition to a low carbon economy.”
Hugh Lawson, head of ESG and Impact Investing at GSAM, said the approach combines “robust reductions” in portfolio emissions with “smart risk management”.
“Low-carbon, sustainable investments are key to our future”
The move was welcomed by the CDP. Lance Pierce, president of CDP North America noted: “Companies take note when investors take action, and when money moves, the world moves too.”
In addition to the low emission index, DiNapoli is committing an additional $1.5bn to the fund’s Sustainable Investment Program, bringing the fund’s total commitment to sustainable investments to more than $5bn.
The announcement was a “bold and prudent step” said Mindy Lubber, president of the nonprofit sustainability group Ceres and director of the Investor Network on Climate Risk.
New York Common has also recently worked with GSAM to determine the carbon footprint of its global equities portfolio. It found the fund’s investments in clean technology and funds focused on ESG sustainability were “paying off”.
“The fund’s global equity portfolio has a 15% lower total emissions profile than its performance benchmark,” it said.