By Tony Campos, director, ESG Americas, FTSE Russell
Some of the largest investors and asset owners in the world gathered recently to discuss climate change at the London Stock Exchange Group’s Climate Finance & Investment Summit, held in New York during Climate Week NYC 2019. The diverse set of key stakeholders brought home for me the role that investors need to play in enabling the transition to a sustainable, low carbon economy. One thing was obvious to me; the largest investors are more focused than ever on climate change, committing mind space and dedicating significant investment dollars toward these goals.
New York State Comptroller Thomas DiNapoli, who opened our summit, oversees the New York State Common Retirement Fund, which is the third largest public pension plan in the United States at more than $200 billion in assets. He discussed his Sustainable Investment Program and how it is reflected in the fund—this includes promoting improvements in the environmental performance of companies in the CRF portfolio on issues related to climate change, investing in renewable energy and other clean technology companies, and expanding its sustainable investments to $20 billion in the next decade.
“Businesses that perform well on sustainability measures also show strong performance for investors,” said DiNapoli when discussing how the Fund uses sustainability measures to screen potential investments. “Investors have a clear role to play with respect to a clean environment,” he added, helping frame the afternoon of discussion that followed.
Hiro Mizuno, executive managing director and chief investment officer of Japan’s $1.4 trillion Government Pension Investment Fund (GPIF), outlined the Fund’s commitment to ESG as a foundation for its investment policy. Notably, he spoke about the fund’s role as a leading force in the investment community to raise awareness of the financial risks we face due to climate change. Fiduciary duty of asset managers, according to Mizuno, demands they incorporate ESG factors into their investment analysis to support a long-term approach to making capital markets more sustainable.
Along these lines, he stressed the themes of long-termism, cross generational investment and universal ownership. For the first two themes, he stressed that we must view our investment strategy as meeting long-term investment objectives, not just next quarter or next year. This is particularly true for a pension fund, where policy changes today can have a much larger impact on those planning to retire decades from now. “We can’t let short-termism prevail in the capital markets,” he stressed. For the theme of Universal Ownership he touched on the interconnectivity of this issue and that we need to work together across the full market ecosystem to make meaningful progress on climate change. “This is a multi-stakeholder model,” he added.
Other panels reinforced the multi-stakeholder model Mizuno-san referenced. In a panel discussion on engagement and stewardship, Kirsty Jenkinson, investment director for sustainable investment & stewardship at California State Teachers Retirement System (CalSTRS) and John Hoeppner, head of US stewardship and sustainable investments at Legal & General Investment Management Americas, spoke with David Harris, LSEG's head of sustainable business, about creating a holistic, long-term approach to climate risk. These very large and influential investors shared ways they are using their influence to drive greater stewardship and engagement on climate change.
The dialogue then shifted to climate change considerations in global fixed income. Ashley Schulten, managing director and head of responsible investing for global fixed income at BlackRock and Ekaterina Gratcheva, lead financial officer in finance competitiveness and innovation global practice at the World Bank, touched on how the largest public and private investors are looking at environmental themes as an important driver of investment policy and credit risk in fixed income portfolios.
One theme that consistently came through for me was the need for more measurement tools and data to put our commitment to sustainability into practice. We took several cues from the discussion about the importance of our role as index and analytics providers to help investors more consistently and accurately evaluate the level of climate risk across markets, industries and individual companies. This is easier said than done, and requires an adaption of traditional financial data models to incorporate emerging climate analysis. But if we continue to work with our clients to promote action and engagement around climate change, I am confident we can make great progress in the years ahead.
“There is a new train heading down the track,” according to DiNapoli. “That train is not being powered by coal.” The remark generated laughs, as well as knowing nods, from our Summit attendees.
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