The $209bn (€185bn) New York State Common Retirement Fund should establish a new “climate solutions” allocation as a first step to “hedge against climate risk”, according to the recommendations of an expert panel released today.
The Decarbonization Advisory Panel, which is chaired by Joy Williams, the climate change consultant formerly with the Ontario Teachers’ Pension Plan (OTPP), and which includes sustainability figures such as Cary Krosinsky and Harvard’s George Serafeim, recommends that the fund “pursue alignment of its entire portfolio with a 2-degree or lower future by 2030 in accordance with climate science consensus”.
Also on the panel are former SEC Commissioner Bevis Longstreth and Tim Smith, Director of ESG Shareowner Engagement at Walden Asset Management. The body was set up in 2017 by New York State Comptroller Thomas DiNapoli in response State Governor Andrew Cuomo’s call for the giant fund to divest from fossil fuels.
It was tasked with providing “thoughtful” recommendations on mitigating climate change risk and transitioning to a low-carbon economy – those recommendations have now been submitted in a report to DiNapoli’s office.
Panel member Alicia Seiger – a Stanford Law School academic who also sits on the board of US non-profit, Ceres – took the lead in drafting the report.
On the fund’s investment process, the panel also recommends the establishing of “minimum standards”, which “would serve as the basis on which the fund decides to buy, hold or sell assets exposed to transition and physical risks”.
These standards should also be used to appraise new investment managers, according to the panel, which adds that the fund should not “increase allocations” to existing managers that do not meet the standards and that it “may re-consider the relationship altogether”.
The panel also call for a “re-audition of consultants and managers” to “identify strengths in climate analysis as well as biases and misaligned incentives hamstringing the Transition”.A Head of Climate Solutions should be appointed at the giant fund to manage the climate focused allocation, the panel states, adding that it should be “supported by a well-resourced team”.
In addition, the fund is called upon to develop its own expertise on “climate risk modelling”, with the panel arguing that much of the work to date on climate risk has not been “useful enough to inform investment decisions”.
Last December, DiNapoli pledged an additional $3bn to tackling climate change, taking its total commitment to the cause to $10bn.
The fund is also advised to re-consider the “centrality of benchmarks” in assessing the fund’s performance, with the panel suggesting a move to an “absolute returns” approach.
The fund is advised to support forward-thinking companies and engage more strongly (with “consequence”) with companies that resist change.
The panel, which doesn’t support “divestment as an investment strategy in and of itself”, says the fund should establish a “glide-path” at resistant companies, including active engagement, so that it “will no longer own” companies not making progress.
Earlier this month, a spokesperson for the fund told RI that it expects to vote against “all incumbent directors” at ExxonMobil for a second year, after the Securities and Exchange Commission controversially ruled that the climate resolution it filed may be omitted – agreeing with the oil giant’s argument that it seeks to micromanage the company.
The panel also suggests that the fund should also consider “seeding new managers” – in which it is the only Limited Partner – to support its climate ambitions.
It should also explore partnerships with the NY Green Bank and other New York State agencies to ramp up green lending.