The work of the NY Common Fund’s Decarbonization Advisory Panel (Part 4)

The work of the NY Common Fund’s Decarbonization Advisory Panel (Part 4) 1024 670 Mantle

By Joy-Therése Williams & Alicia Seiger

Originally published on Responsible Investor

In the final of a series of four articles, Joy Williams and Alicia Seiger of the New York State Common Retirement Fund’s Decarbonization Advisory Panel take a deeper look at the work of the expert panel. Click here for the firstsecond and third in the series. 

The final consensus report from the Decarbonization Advisory Panel (DAP) for the New York State Common Retirement Fund was released last month. Previous articles in this series have covered the headlining elements of our panel’s beliefs and recommendations. This article highlights two supporting recommendations we believe are critical in creating an investing atmosphere that allows investors to act on our recommendations without criticism of moving “too early” or “too fast.”

Our recommendations go against the status quo, and leaders like Comptroller DiNapoli may face criticism in the short-term for going too fast or too far.

Positive reinforcement and educating stakeholders will be invaluable in driving recognition of the scope of climate impacts and for accelerating the tools and thinking needed to shift investing toward climate risk and opportunity management.

To further drive sustainability, the market must reward companies for thinking long term. To date, engagement has been a stick raised when investors observe undesirable behaviour and are active in trying to change it. While engagement to promote a shift in climate management among fossil fuel companies is still a primary tool in many investors’ strategy, our recommendations also raise engagement in another light. We listed multiple ways engagement can be implemented, including to support forward-thinking managers and issuers. Positive signals from large asset owners are invaluable to managers and issuers taking leadership positions.

As managers and other financial market players conceive and create new climate-aware products, buy-side engagement helps to accelerate this process. Indeed, the Fund has already done this with the low-carbon index it built in partnership with Goldman Sachs. Similarly, for issuers implementing climate-wise strategies, being able to demonstrate within their own organisation that investors are increasingly prioritising sustainable strategies helps facilitate buy-in and fortification against critics in the short term.

Beyond positive engagement, education directed at key stakeholders will further build critical support for our panel’s ambitious recommendations. Our recommendations go against the status quo and leaders like Comptroller DiNapoli may face criticism in the short-term for going too fast or too far. With a greater understanding of climate science and impacts, and a fact-based sorting of strategies and tactics, beneficiaries and policy makers can contribute to the fortitude necessary to forge a new path.
That is why we recommended the Fund invest time in educating its beneficiaries on what climate change means to their lives and livelihoods, as well as the systemic risk it poses to their nest eggs. The Fund already engages in advocacy with state, national and international bodies on climate change. The panel recommended that this be increased where possible.

Education within investment teams is also important. Climate change’s direct risks and opportunities are readily understood. More volatile weather will affect property in high-risk areas and clean energy will take market share from fossil fuel power. But climate change issues tend to have ripple effects into sectors and also intertwine and exacerbate existing issues that may not be connected with climate at first glance. Civil unrest fuelled by poor wheat harvests is just one example. Building this type of understanding in the teams that evaluate investment decisions will only increase resiliency in the Fund.

These supporting recommendations are not the ones that draw attention. But achieving true climate resilience in portfolios, rather than just continuing to make small incremental changes as so many investors are doing, will mean doing things differently. Endowing an investment ecosystem that supports a fundamental shift in thinking will be a vital part of achieving decarbonised and climate-resilient portfolios.

Joy-Therése Williams is Senior Advisor, Mantle314 and Decarbonization Advisory Board Chair. Alicia Seiger is Managing Director, Stanford University Sustainable Finance Initiative and a Decarbonization Advisory Panel Member.

Williams is moderating the following panel at the RI Europe 2019 conference on June 11/12 in London:

Sustainable Infrastructure: New Policy Foundations and Investment Plans
Why is sustainable infra an opportunity? How are governments and cities stepping up on long-term, green infrastructure? How are infrastructure specialists evolving their funds to meet the transition and demand?

Other panellists include:
• Heidi Finskas, Vice President, Corporate Responsibility and Corporate Governance, KLP Kapitalforvaltning
• Harold D-Hauteville, Head of Infrastructure Equity, Europe, DWS