Climate change poses significant risks to the Common Retirement Fund’s (Fund) investments, the economy and society as a whole, but the global effort to mitigate these risks creates substantial investment opportunities as well.
Comptroller DiNapoli’s Climate Action Plan takes a comprehensive approach to addressing climate risk and investing in climate solutions. This multi-faceted approach employs sustainable investment strategies, active engagement with portfolio companies and managers, sophisticated risk assessments, strong public policy advocacy and, as a last resort, divestment.
Because of his efforts, DiNapoli has been recognized as a global leader in addressing climate change-related investment risks and pursuing opportunities for the Fund’s investments. For two consecutive years, the Asset Owners Disclosure Project ranked the Fund as the top U.S. pension fund, and third globally, for its efforts to assess and combat climate-related investment risk.
Fund’s 2040 Net Zero Commitment
In December 2020, Comptroller DiNapoli announced that the Fund has adopted a goal to transition its portfolio to net zero greenhouse gas emissions by 2040. As the world increasingly moves toward net zero emissions targets by or before 2050, this goal will continue to ensure the Fund’s portfolio is adapting to the anticipated transition.
As part of its net zero commitment, the Fund will continue to:
- Increase its engagement efforts with companies across industries to encourage them to reach net zero carbon emissions more quickly.
- Vote against board directors at portfolio companies that fail to take steps to mitigate climate risks.
- Expand its investments in climate solutions.
Climate Action Plan
In 2019, Comptroller DiNapoli released a Climate Action Plan that lays out a path for the Fund to further address climate risk in its portfolio. The fundamental strategy of DiNapoli’s Climate Action Plan includes using minimum standards to assess the readiness of companies for the low-carbon transition and climate-related investment risk.
By using minimum standards to evaluate the transition readiness of companies in high-impact sectors, the Fund can place companies with poor performance on a watch list for prioritized engagement. Companies that fail to demonstrate minimal transition readiness may be subject to additional actions, consistent with the Comptroller’s fiduciary duty, such as underweighting, restricting new investments or divestment.
The Fund’s first action was to set minimum standards for the thermal coal mining industry, which led to the Fund’s divestment from 22 coal companies. In 2021, the Fund will take action on oil sands companies, and will develop minimum standards for investments in shale oil and gas. Those will be followed by integrated oil and gas; other oil and gas exploration and production; oil and gas equipment and services; and oil and gas storage and transportation. Minimum standards for all of these sectors, and a determination of which companies are suitable to remain in the Fund’s portfolio, will be completed by 2025. After completing initial reviews, the Fund will continue to reassess whether the remaining companies are meeting minimum standards and are on viable low-carbon transition pathways.
Investing in Climate Solutions
DiNapoli’s Climate Action Plan has committed more than $11 billion to sustainable investment opportunities to date, with plans to nearly double that amount to $20 billion over the next decade. Finding those investment opportunities that will provide solid and sustained returns is the work of the Sustainable Investment and Climate Solutions Program and its dedicated staff. The Fund invests in clean energy, climate solutions, green buildings and infrastructure, and other sustainable investments across all asset classes. This includes investing in green bonds and sustainable index funds such as the Fund’s $4 billion Low Emissions Index, which shifts investments away from high greenhouse gas emitters. The carbon footprint of the index is 75% lower than its benchmark.
For more information, see the Fund’s Sustainable Investment and Climate Solutions Program.
Engagement and Advocacy
Comptroller DiNapoli advocates for companies to disclose and address climate risk, and commit to long-term business model changes that will allow them to thrive in a low-carbon economy. He also provides public policy leadership on climate issues that may impact the Fund’s returns at the global, federal and state levels. As part of his advocacy, DiNapoli has:
- Filed over 150 climate-related shareholder resolutions that have resulted in more than 75 agreements to enhance climate risk disclosure and analyze emissions reduction, renewable energy, and energy efficiency goals.
- Won broad shareholder support to have large emitters such as ExxonMobil and Duke Energy examine how the Paris Agreement will impact their businesses.
- Called on more than 300 major corporations to disclose their carbon emissions. More than 100 have since disclosed their carbon emissions over the last three years.
- Established a policy to vote against board directors at companies that fail to manage and disclose material climate risks. For example, the Fund has voted against incumbent board members of ExxonMobil for the last two years.
- Supported the Paris Agreement, the Clean Power Plan, tax credits for solar and wind power, fuel efficiency standards, carbon pricing, the Regional Greenhouse Gas Initiative and efforts to pass the federal Climate Risk Disclosure Act.