PensionDanmark and nine non-European pension funds, managing a total of $1.3trn (€1trn), have signed a commitment to the UN to consider “climate-resilient” infrastructure investment opportunities and take climate-related factors into account in the design and operation of their assets.
In joint and individual letters to UN secretary-general Ban Ki-moon and the UN Climate Summit held yesterday in New York, the 10 pension funds – including the California Public Employees’ Retirement System (CalPERS) and the Ontario Teachers’ Pension Plan – also called for governments and regulators to create frameworks for climate-related infrastructure investments that give them long cash flows and shared risks.
The other seven pension funds signing the commitments were Alberta Investment Management Corporation, British Columbia Investment Management Corporation, California State Teachers’ Retirement System, Government Employees’ Pension Fund of South Africa, New York State Common Retirement Fund, New Zealand Superannuation Fund and Office of the New York City Comptroller.
The pension funds said they were making a commitment to “identify and evaluate investment opportunities in climate-resilient infrastructure – including assets that contribute to the mitigation of greenhouse gas emissions, reduce the vulnerability of affected communities and enhance adaptive capacity”.
These investments must fit within an existing asset class in their portfolio, have risk/return characteristics that are competitive with other opportunities and satisfy portfolio objectives and constraints, according to the wording of the letters.
On top of this, the funds said they would “incorporate appropriate measures that consider climate change and sustainability in the design, construction and operation of their assets where applicable and are consistent with existing policies, procedures and processes, as well as their fiduciary responsibilities to act in the best long-term interests of their beneficiaries”.
But the funds also called for legislators and regulators to facilitate the kind of investment structures they need.
“Attracting this capital, as well as from other private sector sources, on the massive scale necessary to address the problems associated with climate change will require policymakers and regulators to create frameworks that enable structures that have long-term cash flows and appropriately distribute the risk across parties,” they said.
The pension funds said they would work with the UN secretary-general and his staff to “build an investment environment that will achieve the collective goals”.
The funds made three suggestions about how policymakers could promote institutional investment in climate-friendly infrastructure, including setting long-term infrastructure strategies and policies that lead to pipelines of such projects with attractive long-term contracted and inflation-protected cash flows.
Other suggestions covered incentives to invest and the development of mechanisms whereby international finance institutions and development banks take on development and construction risks.
Separately, Swedish pensions buffer fund AP4 said it was spearheading a new project to encourage institutional investors to decarbonise their portfolios.
Also on the occasion of the UN Climate Summit, AP4, asset manager Amundi and environmental data firm CDP said they launched the Portfolio Decarbonization Coalition (PDC) in conjunction with the United Nations Environment Programme and its Finance Initiative (UNEP FI).
The coalition is aimed at shrinking the carbon footprint of $100bn of institutional investment worldwide, they said.
Mats Andersson, chief executive at AP4, said: “We are both proud and honoured to receive the trust of the UN secretary general to take the lead of this coalition to support our peers in taking climate action.
“Climate change is more and more recognised as a financial risk, and it is our duty, as trustees, to take concrete steps to reduce this risk.”
He said that though $100bn was a significant amount, it was also feasible.
“And we hope that by reaching this target, investors can show that a different course of action is possible, where institutional investors’ goals are aligned with and support the common good,” Andersson said.
The coalition plans to get other institutional investors involved and measure and disclose the carbon footprint of at least $500bn of assets under management.
After that, investors will commit to the PDC to reduce substantially their carbon footprint, with an immediate target of $100bn by December 2015, the parties said.
AP4, Amundi and CDP said the China International Capital Corporation (CICC) was also supporting the project.
The corporation’s chairman Jin Liqun said: “CICC is committed to promote the decarbonisation of investment portfolios and the use of low-carbon indexes, particularly in Asia and in China.”