[Ed. note: No blogs will be published Monday in observance of Indigenous Peoples’ Day. Blogs will start up again Tuesday.]
I’ve been critical about simple divestment of high-GHG-emitting holdings as a Net Zero strategy. It is basically window dressing that appears to meet Net Zero goals only in the very short term and achieves almost nothing in the long term because there are always buyers on the other side of the divestment. Major investors may now be moving away from divestment to achieve their goals in this regard. In an interview with NetZero Investor, Thomas DiNapoli talked about how the $258 billion New York State Common Retirement Fund, the worlds third-largest pension fund, manages its Net Zero goals and strategies.
Here are the money quotes (pun fully intended):
“We have to balance short-term obligations and annual return objectives with our focus on the fund’s long-term value and the impacts that climate change can have on our portfolio. The fund’s net zero commitments reflects our deep concerns about the systemic risks posed by climate change… As a long-term, universal investor, it is clear that the fund cannot achieve its net zero goals unless the real economy does as well. That is why our comprehensive strategy includes using all the different tools available to a public pension fund: engagement with our portfolio companies and managers, proxy voting, public policy advocacy, and investments in climate solutions.”
Notice the missing one word missing in his statement? He does eventually get to it:
“Divestment is a last resort, only used by the fund to address specific and serious risks that can’t be addressed otherwise. Though we have made some divestments in the energy sector, a fund of our size and diversity cannot divest our way to net zero. In addition, if we achieve net zero greenhouse gas emissions for the fund, but the real economy does not, many of the fund’s investments would continue to face climate risks.”
The upshot of this is that portfolio companies should be prepared for more investor pressure to operationalize Net Zero in a meaningful way – in the “real economy” as DiNapoli puts it. Companies that don’t walk the talk can expect to see more investor engagement and proxy activity that goes beyond past efforts to simply develop a company Net Zero plan and goals. As DiNapoli said “We will only achieve our net zero goal if the real economy moves to net zero. That requires companies to commit to emissions reductions and public policies that drive change.”
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