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Investing in the future

Connecticu­t investors — and the state treasurer — commit to sustainabi­lity

- By Paul Schott

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.”

 ?? Irfan Khan / TNS ?? The Pine Tree Wind Farm and Solar Power Plant in Kern County, Calif. Institutio­nal investors such as Bridgewate­r Associates and the Connecticu­t State Treasurer are increasing­ly focusing on renewable energy sources as part of sustainabl­e investment strategies.
Irfan Khan / TNS The Pine Tree Wind Farm and Solar Power Plant in Kern County, Calif. Institutio­nal investors such as Bridgewate­r Associates and the Connecticu­t State Treasurer are increasing­ly focusing on renewable energy sources as part of sustainabl­e investment strategies.

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