Using CDP data to establish a low emission index.
The New York State Common Retirement Fund is the third largest public pension fund in the U.S., with an estimated $184.5 billion in assets. The CRF was one of the first U.S. pension funds to become a CDP Investor Signatory in 2004 and has been a leader in sustainable investment for over a decade. The CRF has developed broad strategies to address climate-related investment risk by seeking sustainable investments, persuading corporations in the Fund’s portfolio to adopt better environmental policies, and urging regulators to support strong policy actions.
A low carbon investment strategy
As part of measuring and, in time, reducing its climate risk, the CRF undertook a carbon footprint review and found that its global equity portfolio has a 15% lower emissions profile than its benchmark (75% Russell 3000/25% MSCI ACWI).
However, the CRF has gone much further than just taking this baseline measurement.
In December 2015, New York State Comptroller and Fund Trustee Thomas P. DiNapoli announced a new investment strategy, a $2 billion custom Risk Aware Low Emissions (RALE) index, at the Paris COP21. Created in partnership with Goldman Sachs Asset Management, the RALE index underweights investments in companies that are large contributors to carbon emissions, and increases investments in companies that are lower emitters, while closely tracking the return of its benchmark, the Russell 1000. The emissions profile of the RALE investment is 74% below its benchmark.
Comptroller DiNapoli explains, “Low carbon, sustainable investments are key to our future. Our pension fund has long-supported climate aware strategies. The Index is an important part of our strategy to help protect the Fund’s investments, and an approach that we can expand across all asset classes.”
CDP data is a vital ingredient
Combining independent emissions data reported to CDP with GSAM’s proprietary risk-aware optimization methodology, the RALE index aims to substantially reduce the Fund’s U.S. equity portfolio’s carbon emissions consistent with risk and return expectations. Using the CDP Full Greenhouse Gas Emissions Data Set to fill in gaps from non-reporting companies improves the robustness and reliability of emissions analysis.
Active company engagement and other initiatives
Under Comptroller DiNapoli’s leadership, the Fund has been recognized as a leader for its active engagement with companies on ESG issues, including climate change. CDP data informs the CRF’s identification of target sectors and companies for active engagement, which is an integral part of the RALE strategy. The CRF joined CDP’s Carbon Action, a joint initiative of 304 investors representing US $22 trillion, seeking to accelerate company action on emission reduction and energy efficiency. The CRF is committed to asking high carbon emitting companies in its portfolio to take strong action by setting emission reduction targets and investing in emission reduction projects. The CRF has written to companies in the Russell 1000 that did not report climate data asking them to disclose to CDP.
The CRF has also provided a leading voice for strong policy and regulatory actions on enhanced corporate climate disclosure, calling for:
- National policies to level the playing field for investment in solutions to climate change;
- Eliminating subsidies received by the fossil fuel industry;
- Pricing carbon emissions; and,
- Supporting the development and deployment of non-greenhouse gas emitting forms of energy.
The CRF recently joined with 130 other investors worth a combined US $13trillion in writing to the G20 on these matters.
Most recently, in January 2017, the CRF deepened its climate action by becoming the first major US pension fund to join the Portfolio Decarbonization Coalition - a group co-founded by CDP, UNEP FI and leading investors that has pledged to decarbonize portfolios by over $600 billion.
Looking forward, the CRF will continue to work with fellow investors and the corporate sector to reinforce the message that environmental disclosure through frameworks such as CDP is a vital part of achieving the goals of the Paris Agreement.