Institutional investors and international organizations are coming together to get energy companies to divest from carbon-based investments and governments worldwide to stop subsidizing fossil fuels.
The new activity came as the United Nations convened a summit on Sept. 23 calling for a reduction of the carbon investments and shifting more to green investments.
A group of global asset owners and other institutional investors called for phasing out governmental subsidies for fossil fuels and for governments to compel carbon pricing. That pricing would add risks of climate change implications to the value of fossil-fuel assets, making investments in a green economy more competitive and contribute to meeting challenges from climate change.
In separate moves, APG Asset Management, CalSTRS and the University of California each plans to step up green investments by a combined $4.6 billion.
The e16 billion ($20.4 billion) L’établissement de Retraite additionanelle de lat Fonction Publique, a Paris-based public pension fund, announced Sept. 25 plans to divest carbon-intensive companies from a e750 million index fund.
On Sept. 22, the $860 million Rockefeller Brothers Fund, New York, announced plans to divest its fossil-fuel holdings, which total $56 million to $57 million or about 6.5% of the total fund and includes stock inExxon Mobil Corp., Chevron Corp, and BP PLC, said Stephen Heintz, fund president.
The $298 billion California Public Employees’ Retirement System, Sacramento, on Sept. 25 committed to mapping the carbon footprint in its investment portfolio, starting with equities, by December 2015, said a statement from CalPERS. It pledged to develop an engagement strategy and/or set portfolio carbon footprint reduction targets.
“These things have a snowballing effect,” said Christopher C. McKnett, vice president, State Street Global Advisors, Boston, who heads its global environmental, social and governance investments business.
David Pitt-Watson, chairman, U.N. Environment Programme Finance Initiative, and senior strategic adviser at Inflection Point Capital Management, said at a teleconference of institutional investors in advance of the summit: “Investors are calling ittheir fiduciary duty … to say it’s not just the planet at risk here. It’s people’s savings and pensions … if we don’t take action.”
Anne Simpson, CalPERS’ senior portfolio manager and director of global governance, said at the teleconference that a group of 347 global asset owners and other institutional investors representing $24 trillion in assets — including CalPERS, CalSTRS, BT Pension Scheme, APG and BlackRock (BLK) — is calling for governments worldwide to impose carbon pricing and other measures that would encourage more green investment.
“There is a market failure that needs to be addressed,” Ms. Simpson said. “Carbon is not priced and subsidies (to fossil-fuel companies) are distorting investment decisions.”
“Work with us’
Investors pursuing sustainable investment need to “get the market to work with us, rather than against us,” Ms. Simpson said. “And that’s where the question of carbon pricing comes in. If we don’t get the market incentives aligned with our fiduciary responsibility, we won’t (move enough to) the investment that is needed in new … opportunities” related to clean energy.
CalPERS and other institutional investors are calling on the largest energy companies to “return money that they earmarked for new exploration simply because our view is we can deploy that capital more effectively (than producing more fossil fuels), which, long term, poses systemic risk for us” in investing, Ms. Simpson said.
Among institutional investors planning to allocate more assets to green investments, APG officials intend to double to e2 billion investments in sustainable energy generation, such as in wind and solar power, over the next three years.
They plan to place the new $1 billion all in its infrastructure allocation, Harmen Geers, APG senior press officer, said in an e-mailed response to questions.
APG, based in Heerlen, the Netherlands, has e377 billion in assets under management. APG manages the e325 billion ABP pension fund, also based in Heerlen, as well as the e38 billion Stichting Bedrijfstakpensioenfonds voor de Bouwnijverheid pension fund and the e10 billion Stichting SPW pension fund, both in Amsterdam.
APG expects to partner with co-investors “who can also take care of the operational management,” Mr. Geers said, explaining the search process.
The $186.6 billion California State Teachers’ Retirement System, West Sacramento, plans to more than double its clean energy and technology investments — to $3.7 billion from $1.4 billion over the next five years.
Brian Rice, CalSTRS portfolio manager, said CalSTRS will look at increasing allocations to existing managers before deciding on searches for new managers. The increase in clean-related investments will be across all CalSTRS’s asset classes, Mr. Rice said.
Explaining the reason for the increase, Mr. Rice said CalSTRS wants to position its investments to capitalize on an expected transition to a clean-related economy.
The Rockefeller fund hopes to complete the divestment in two to three years, Mr. Heintz said. It hired New York-based Perella Weinberg Partners LP as outsourced CIO in March and plans to shift a greater part of investments to green and other investments supportive of the foundation’s mission without sacrificing its return and risk objectives, Mr. Heintz said.
Perella in turn hired Imprint Capital Advisors LLC, San Francisco, as an investment consultant to assist in the divestment and the shift toward more investments aligned with the foundation’s mission.
“I think we may want to maintain some residual position in some of these major energy companies so we can continue to be active with proxies” in voting and shareholder activism to exert influence, Mr. Heintz said.
In ERAFP’s case, its index fund is managed by Paris-based Amundi Asset Mangement, which is assisting in the divestment.
ERAFP plans to divest from the index fund the overall 5% most-polluting companies and from each economic sector, 20% of the most polluting companies, a statement from the fund said.
“This decarbonization methodology rounds out the best-in-class approach of selecting only those companies with the best environmental, social and governance profiles,” the statement said.
Oakland-based University of California, which oversees a combined $91 billion in assets in its endowment, defined benefit and liquidity pool funds, plans a new $1 billion allocation to green investments that will include renewable power and fuels, energy efficiency and possibly sustainable foods.
Officials plan to integrate environmental, social and governance factors “as a core component of portfolio optimization and risk management,” minutes of the Sept. 18 regents meeting said.
Source: Pensions & Investments