New York State Comptroller Thomas P. DiNapoli today announced an investment strategy that will raise the New York Common Retirement Fund’s (Fund) commitment to sustainable investments to $5 billion. The cornerstone of DiNapoli’s plan is the creation of a $2 billion index that 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. DiNapoli announced the new low emission index in Paris, where he is participating in an investors’ panel as part of the United Nations Climate Change Conference.
“Low-carbon, sustainable investments are key to our future,” DiNapoli said. “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’s an approach to low carbon investment that we can expand across all asset classes and help spur the kind of innovation and ideas that will assist in the transition to a low carbon economy.”
“As a long-term investor we are very interested in strategies that manage risk, and there is no question that climate change is one of the biggest risks facing global investors across multiple sectors,” said the Fund’s Chief Investment Officer Vicki Fuller. “These are just our latest commitments. By shifting our capital to companies with lower emissions and comparable returns, we are sending the message that our investment dollars will follow businesses with strong environmental practices.”
The low emission index, which was created in partnership with Goldman Sachs Asset Management (GSAM), will be modeled after the Fund’s existing indices, which are passive investments in U.S. companies with returns that match broad market performance. The new index, which will 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. Additional funds can be added to the index as performance warrants.
“This approach combines robust reductions in portfolio emissions with smart risk management. We welcomed the opportunity to extend our strategic partnership with New York state by developing this customized method for reducing their portfolio's carbon emissions in a manner consistent with the risk and return expectations of their U.S. equity portfolio,” said Hugh Lawson, head of ESG and Impact Investing for Goldman Sachs Asset Management.
The low emission index will eliminate or underweight stock ownership in some of the worst greenhouse gas emitters based on independent emissions data reported to the CDP (Carbon Disclosure Project). The new commitment will reduce the emissions profile within the index by up to 70 percent. Money for the index will come from the Fund’s existing index holdings.
“Forward-thinking pension funds like the New York State Common Retirement Fund know that moving capital toward a low-carbon economy protects their beneficiaries’ returns, and is one of the fastest ways to address global warming,” said Lance Pierce, president of CDP North America, whose disclosure data is at the core of the new index. “Companies take note when investors take action, and when money moves, the world moves too. We look forward to seeing the positive changes this will spur in future company actions.”
In addition to the low emission index, DiNapoli is committing an additional $1.5 billion to the Fund’s Sustainable Investment Program, bringing the Fund’s total commitment to sustainable investments to more than $5 billion.
Prior to the commitments announced today, the Fund had already allocated more than $1.5 billion to sustainable strategies across asset classes, from a wind farm in New York state to alternative energy production across the globe.
“Today's announcement by the New York State Common Retirement Fund is a bold — and prudent — step to manage the risks of climate change, and seize the opportunities of the clean energy future," said Mindy S. Lubber, president of the nonprofit sustainability group Ceres and director of the Investor Network on Climate Risk, which includes 115 institutional investors who collectively manage over $13 trillion in assets. “Tackling climate change requires a colossal shift in investment capital flows toward clean energy and away from high polluting fossil fuel energy. This announcement helps achieve this shift, but it’s still only the tip of the iceberg of what all institutional investors need to be doing.”
Under DiNapoli’s leadership, the Fund has been recognized as a leader for its active engagement to improve the environmental, social and governance practices (ESG) of its portfolio companies. This year, the Fund earned the highest grade possible from the Asset Owners Disclosure Project, which focuses on climate change best practices. The Fund was ranked first in active ownership and sixth overall among the 500 global investors assessed. More detail on the Fund’s engagements with corporations over climate change concerns is here: www.osc.state.ny.us/sites/default/files/other/documents/pdf/2019-03/climate-change-fact-sheet_0.pdf.
The Fund has worked for more than a decade with other investors to better assess and understand the risks and opportunities related to climate change. In order to quantify these risks, and better manage them, the Fund participated in the Mercer LLC study, “Investing in a Time of Climate Change,” which identified the impacts that various scenarios of climate change could have on global investors. DiNapoli subsequently commissioned Mercer, a global think tank and research firm, to create a climate change study tailored to the Fund’s assets, which has helped inform and inspire the Fund’s low carbon strategy. The full report is here: www.osc.state.ny.us/sites/default/files/other/documents/pdf/2019-03/nyscrf-climate-change-report-2015.pdf.
The Fund also recently worked with GSAM to determine the carbon footprint of its global equities portfolio. The review determined that the Fund’s ongoing efforts — investing in clean technology and funds focused on ESG sustainability — are paying off. The Fund’s global equity portfolio has a 15 percent lower total emissions profile than its performance benchmark. The new index will further reduce the carbon footprint of the Fund’s overall equity portfolio.
DiNapoli has positioned the Fund in the vanguard of institutional investors who seek out and promote sustainable investing that takes environmental, social and corporate governance considerations into account as part of their long-term strategy. The Fund is committed to the belief that well-managed businesses, which focus on the long-term health of the company and work to avoid environmental damage or harm to the communities in which they operate, are more likely to produce sound returns. A growing body of academic research confirms this and investment firms that integrate sustainability in their decisions have performed well for the Fund.
About the Common Retirement Fund
New York State Comptroller Thomas P. DiNapoli is trustee of the New York State Common Retirement Fund, the third largest public pension plan in the United States. To protect the retirement security of its more than one million members, retirees and beneficiaries from more than 3,000 state and local government employers, the Fund manages a diversified portfolio of public and private equities, fixed income, real estate and alternative instruments. It has consistently been ranked as one of the best managed and best funded plans in the nation. The Fund’s fiscal year ends March 31, 2016.