Investing in the future
Connecticut investors — and the state treasurer — commit to sustainability
For a number of Connecticut’s leading investors, evaluating their portfolios’ performance involves much more than just calculating the monetary return on investment.
Officials at Westportbased Bridgewater Associates, the world’s largest hedge fund, and state Treasurer Shawn Wooden are among those who have responded to clients’ and constituents’ concerns by taking a more holistic approach to deploying capital. They reflect the growing number of companies and government agencies that are scrutinizing their investments’ societal and environmental impact — a shift accelerated by the coronavirus pandemic and other global threats such as climate change.
“This is in many ways a reflection of us saying this is no longer a fringe issue,” Karen Karniol-Tambour, Bridgewater’s co-chief investment officer for sustainability, said in an interview. “We’re seeing a very large percentage of our bodies of clients around the world saying this is one of their most-important strategic issues.”
Reasons for sustainable investing
Bridgewater announced last month a new sustainable investing venture. The initiative builds on the firm’s longstanding use of environments social and corporate governance (ESG) principles to assess the impact of its investments, according to executives.
“This is a formalization of a research effort and a client partnership effort that has been underway for a number of years,” said Carsten Stendevad, Bridgewater’s other co-chief investment officer for sustainability, who formerly served as CEO of Denmark’s national pension fund. “You start with a deep focus on research, and then you let the research drive the process. This is a long-term strategic priority for Bridgewater, and that’s how we approach it.”
The firm’s first sustainability-specific strategy, known as the “All Weather Sustainability Strategy,” will launch at the end of the second quarter or the beginning of the third quarter. Investors will have two access points: a direct fund available through Bridgewater and a fund offered by European asset management firm Lyxor.
Bridgewater has the capacity to make large-scale investments in the new undertaking. Its approximately $150 billion in assets under management rank No.1 in size among hedge funds. Its investor base includes sovereign wealth funds, public and corporate pension funds, university endowments, charitable foundations, “supranational” agencies, foreign governmental,
and central banks.
“We call this basically three-dimensional investing, saying ‘I don’t only care about risk and return — in other words, how much money do I make and do I have any risk of losing it — I also care about impact in the world,’” Karniol-Tambour
said. “The more investors say ‘This is really important to me, and if you invest my money, I need you to think about and measure everything to do with impact,’ the more we have to have a deep, developed way of doing that.
As a reference point,
Bridgewater officials cited the United Nations’ 17 Sustainable Development Goals. Those objectives focus on issues such as clean water and sanitation, economic development, education, poverty and environmental concerns such as climate change.
“What we love about the UN Sustainable Development Goals is they’re very broad,” Karniol-Tambour said. “They have a comprehensive vision where the pieces are interconnected. For example, to deal with the climate, you’re not making people poorer. It’s all kind of one view. And they’re very widely agreed upon and accepted.”
UN officials said they were heartened that the Sustainable Development Goals were guiding the investment decisions of the likes of Bridgewater.
“The rapid mobilization of all resources, including finance, both public and private, is essential for the achievement of the goals,” said Daniel Shepard, a UN spokesman. “It is, moreover, important that the investments made are aligned with the SDGs, which will enable them to generate long-term sustainable returns. We are at an important pivotal moment where the decisions and investments we make now will determine whether we recover from the COVID-19 pandemic in a greener and sustainable manner.”
Bridgewater’s new venture aligns with the focus of Ray Dalio, its founder and cochief investment officer, who frequently speaks about global issues such as economic inequality.
“The reason the system is broken is because it’s not an equal-opportunity system,” Dalio, a Greenwich resident, said in November 2019 at the Greenwich Economic Forum. “There are justifiable complaints about the failure of that system to produce education. It needs to be reformed in a way that works better.”
While they are gaining increased attention, ESG principles have influenced investment decisions for decades.
“There is a significant fraction of the population that has environmental concerns,” said Lawrence J. White, a professor of economics at New York University. “To the extent that gets expressed through investment behavior — i.e., ‘Gee, I really don’t want to invest in a petroleum-related company’ — it’s similar to people saying 40 years ago, ‘I don’t want to invest in a tobacco company or a company that is doing business in apartheid South Africa.’”
Growing state investment in renewable energy
Sustainability concerns are also shaping the state government’s investment strategy.
In March, state Treasurer Shawn Wooden announced Connecticut’s first investment solely focused on renewable energy, with a $100 million commitment to a fund managed by BlackRock, the world’s largest asset manager. The fund focuses on wind and solar energy and aims to meet the UN Sustainable Development Goals.
Since Wooden took office in 2019, clean energy has figured prominently in the firstterm Democrat’s plan for diversifying the investments of the state’s retirement plans and trust funds for public-sector employees. He doubled the Connecticut investment portfolio’s target allocation in infrastructure and natural resources from 2 percent to 4 percent. Including the BlackRock fund, Connecticut has investments totaling about $860 million in funds focused on energy and infrastructure.
In his explanation of the state’s investment strategy, Wooden cites a Bloomberg New Energy Finance forecast that renewable energy will account for 57 percent of all new U.S. capacity between 2020 and 2024 and 74 percent of all U.S. capacity by 2050.
“There are some of the view that you actually can’t invest in ways in that are beneficial to society and generate good returns. I have just the opposite philosophy,” Wooden said in an interview. “The reason we are so committed to ESG is because we believe that that is how we are going to maximize returns in the future, while managing risk.”
Among related initiatives, the state Treasurer’s Office joined in 2019 a coalition of institutional investors cumulatively representing more than $1.8 trillion in assets to demand that the 20 largest publicly traded electricity generators in the U.S. commit to producing net-zero carbon emissions.
Last November, Connecticut’s retirement plans and trust funds co-filed a resolution seeking disclosure from banking giant Wells Fargo about how it intended to reduce greenhouse gas emissions related to its financing activities. As a benchmark, the resolution cited the goals of the Paris Agreement, the international treaty on climate change adopted in 2015.
Connecticut has invested about $107 million invested in Wells Fargo, which ranked No. 30 on last year’s Fortune 500 list.
In March, Wells Fargo announced a plan to achieve by 2050 net-zero greenhouse gas emissions — including “financed emissions” from entities that it financially supports.
“When I present to the (credit) rating agencies, they ask questions about climate change and risk and what are we doing to manage for that as a state,” Wooden said. “It’s one of the biggest issues confronting not just our country, but the globe.”