New York City’s public pension fund NYCERS is just five percentage points short of its 2025 interim net-zero goal to reduce portfolio emissions by 32 percent, following the completion of its fossil fuel divestment at the end of 2021.
On Wednesday, the $78 billion fund published its plan to achieve net zero by 2040, revealing that between December 2019 and June 2022 its portfolio emissions decreased by 27 percent – a period that corresponds with NYCERS divesting $1.6 billion from fossil fuels.
“With the interim target of 32 percent for 2025, the annualised emissions reduction rate could drop to 2 percentage points between 2022 and 2025 and then would need to increase to 5.4 percentage points for the next five years to achieve 59 percent reduction by 2030,” the plan states.
The fund’s new emissions targets cover Scope 1 and 2 portfolio emissions, using December 2019 as a baseline.
In 2018, NYCERS and two other New York public pension funds committed to divest fossil fuels within five years – an action that NYCERS completed by 2022.
The same three funds – New York City Employees’ Retirement System (NYCERS), the Teachers’ Retirement System of the City of New York (TRS) and the New York City Board of Education Retirement System (BERS) – also committed in 2021 to achieve net zero by 2040.
NYCERS is the only fund cited as adopting the net-zero plan in the document but a spokesperson for the Office of the New York City Comptroller, Brad Lander, whose office oversees the city’s five public funds, told Responsible Investor that TRS has now also approved it. BERS is still reviewing it, she added.
Engagement is one of the key pillars of the net-zero plan.
RI asked comptroller Lander whether there is a risk that investors will be forced to choose between divestment and meeting net-zero goals or staying invested and engaging but missing reduction targets – potentially undermining them in the process.
“First, you do everything you can to align broad action for serious steps towards targets, if we do that, we may not have to confront that choice quite so starkly,” he said.
“If our asset managers, beginning with BlackRock, our largest, and all the others, move with a plan like ours, then banks will have to move more rapidly to stop investing in new [fossil fuel] infrastructure, and portfolio companies will have strong incentives to make the changes that we need them to make.”
Lander added, however, that “if it goes in the other direction… then you’ll be faced with an impossible choice of saying, ‘to hit my numbers, I have to go for portfolio decarbonisation’, which has its own risks – if you have to narrow your portfolio to only a modest percentage of the economy, it’s much riskier”.
Managers on notice
The new net-zero plan also puts both asset managers and companies on notice. As part of this, the comptroller’s bureau of asset management (BAM) will report annually to NYCERS on companies and managers failing to take the steps required of them on climate, including around stewardship.
“By 2025, BAM, with the benefit of this information, will recommend to NYCERS criteria that it will employ to identify companies and managers for possible divestment due to their demonstrated and implacable opposition to taking substantive steps to reduce their GHG emissions consistent with the goal of maintaining global warming to 1.5C,” the plan outlines.
Lander told RI that NYCER trustees “rightly” had questions about this. “They want to be leaders, they know this is necessary, and they also recognise that if we were to significantly reduce the universe of asset managers as right-wing state Treasuries are doing, people are already calculating the cost of that,” he said.
“We take our fiduciary duty very seriously, we set up a dialogue between trustees and managers to say, look, we are looking to be ambitious, but we also are looking to be pragmatic and reasonable, we want bold action that people can and will actually take, not magical thinking that sounds good, but isn’t actually achievable.”
Lander described the feedback from asset managers following outreach as “encouraging”.
Asset owner collaboration
One area that asset owners could collaborate on is manager questionnaires around climate efforts, Lander said.
“We would be delighted to adjust our manager questionnaire, our diligence questionnaire to, you know, align with other asset owners.”
Some early-stage dialogue on this is already taking place on this, Lander said, revealing that he has spoken with people at the UN’s High-Level Expert Group on the Net-Zero Emissions Commitments, the Net Zero Asset Owners Alliance and think tank Carbon Tracker on the topic.
Ramping up climate investments
The net-zero plan will also see NYCERS up its investments in climate change solutions from around $1.9 billion currently to $4 billion in 2025 and $17 billion by 2035.
“I believe that this plan really sets the standard, and that if a broad set of other institutional investors, asset managers, adopt a similar, comparable approach, then we have a real chance,” Lander concluded.