Pension system weighing portfolio’s carbon footprint
Fund managers want to minimize impact on environment of investments
“If it’s a risk to the system, we need to think of it like any other risk and incorporate it throughout our entire process.”
The managers of Maryland’s pension fund have begun considering the effect their investments have on climate change and how to minimize the carbon footprint of the state’s $45 billion portfolio.
The state’s chief investment officer told lawmakers Wednesday that the pension system is weighing how efforts to reduce greenhouse gas emissions could lower the value of some of its investments, and how to shift more money to environmentally friendly industries, such as renewable energy.
Members of the General Assembly requested the briefing as large investors around the country are increasingly selling assets linked to fossil fuels and urging companies to reduce emissions.
The pension system covers state and local government employees, police, teachers and judges.
System officials have not changed their investment strategy, said Andrew Palmer, who oversees the portfolio. But they’re incorporating more questions about climate change impact into their decision making.
“If it’s a risk to the system, we need to think of it like any other risk and incorporate it throughout our entire process,” he told the Joint Committee on Pensions, which oversees the system.
Palmer said pension trustees are studying the ways climate change can affect investments. He said they must consider both how federal and international efforts to reduce carbon emissions might reduce the value of assets linked to oil, coal or heavy manufacturing, for example, and also what potential might lie in technologies that will be necessary “to transform to a low-carbon world.”
State Treasurer Nancy K. Kopp said it can be difficult to gauge an investment’s carbon footprint because companies are inconsistent in the amount and detail of information they publicly release.
Kopp is involved in national efforts to establish standards for corporate disclosure of environmental impacts.
“Without that, it’s very hard to do much of anything as far as knowing what to invest or not invest in,” she said.
The task is expected to get easier as more large investors begin considering climate change, said Nick Ashburn, senior director of impact investing at the Wharton Social Impact Initiative at the University of Pennsylvania.
Ashburn said universities, pressured by students, and wealthy individuals with a sense of social responsibility were among the first to prioritize environmentally conscious investing. But increasingly, large investors such as pension funds are raising the same questions, placing more pressure on companies to explain in more detail how they affect the environment.
United Nations Secretary General Ban Ki-moon in 2014 called on pension funds to cut investments in oil companies and back renewable energy ventures instead.
California lawmakers last year required the state’s pension systems to divest coal-related investments. Cities including Seattle, Oakland and Minneapolis also have taken steps to sell off assets tied to
Andrew Palmer, who oversees pension fund
fossil fuels. And since 2012, more than 500 universities around the world have shed fossil fuel stocks.
Other large investors are focusing on promoting change, rather than pulling their money out altogether. California’s pension system recently launched a push for companies in its portfolio to add climate change risk experts to their boards of directors, for example.
New York state Comptroller Thomas P. DiNapoli in August announced agreements with companies in the state retirement fund’s portfolio, including retailers Best Buy and Nordstrom and energy producers Allete and NorthWestern Energy, to explore low-carbon and renewable energy sources. The state is among many ExxonMobil investors pushing the energy giant to reduce its carbon footprint.
Palmer said the Maryland system is exploring how it can exert similar pressure on companies in its portfolio, but limited resources make it difficult.
California has a $3 million budget for staff dedicated to environmentally and socially conscious investment decisions, he said. That’s half of Maryland’s entire budget for managing pension investments.
Coppin State University basketball player Keith Shivers runs around the block on Wednesday with, from left, Fiona D’Andrea, Olivia Cromin and Poppy McDonald, all pupils at Mount Washington Elementary/Middle School. The Coppin men’s basketball team and women’s track and field team visited the school.