DiNapoli: fund focuses on economic growth

Pension funds are “perpetual investors” and should promote long-term, sustainable economic growth through integrating environmental, sustainability and governance considerations into investment decisions, New York State Comptroller Thomas DiNapoli says.

DiNapoli – who is the sole trustee of New York’s $140 billion state pension fund – told attendees at an investor summit on climate change that institutional investors needed to look beyond the current debate about environmental regulation stymying growth.

Climate change was a “chronic injury” to the economy that the market has failed to price, DiNapoli says.

He said institutional investors needed to invest in green technologies not because it was the right thing to do but because it was both in the direct and indirect financial interests of fund members.

“Ultimately our goal is simple: we want long-term, sustainable economic growth,” DiNapoli told attendees at the Investor Summit on Climate Change, which was jointly organised by climate change leadership lobby group, Ceres, and the United Nations.

“We have found that comprehensively integrating ESG considerations into investment processes is essential to achieving that goal.”

DiNapoli told the summit that the fund had deployed three-quarters of the $500 million it has allocated to a green investment program.

The fund has instigated a “staff sustainability team” to review all sustainable investments and to recommend further investments.

“As an institutional investor we will continue to focus on these [climate change] issues, not only because it is the right thing to do, but also because it is the smart thing for the one million members of New York’s state and local retirement systems,” he said.

DiNapoli was one of a number of large institutional investors that included the heads of CalPERS and CalSTRS who outlined strong commitments to investing in green technology to mitigate the risks and take advantage of opportunities presented by climate change.

However, Goldman Sachs senior investment strategist, Abby Joseph Cohen, told investors that risk-averse investors had shied away from green investments in the two years after the financial crisis.

“Many investors have looked to green market investing as a bull market phenomena and during a bear market or a more questionable market environment they are thinking more in terms of conservative investments,” Cohen, who is also the president of the Global Markets Institute, said.

“They [investors] are thinking more in terms of dividends and more in terms of immediate cash returns on investments than about long-term return and they are certainly not thinking much about societal returns. That is something for us to keep in mind and we think we may have passed the worst of it.”

Cohen said that, while both investors and corporations have cash sitting in balance sheets waiting to be invested, policy makers had to look at innovative ways to make investors feel more comfortable in taking risk and focusing on the long-term.

The final address of the conference came from BT Pension Scheme’s trustee director, Donald MacDonald, who called for investors not to wait for policy makers to provide regulatory clarity before investing.

“Policy uncertainty should not stop investors and there are many examples of private industry and private capital which are working together constructively to move the agenda forward,” said MacDonald, who is also the chairman of the Institutional Investors Group on Climate Change.

MacDonald said many investors doubted the effectiveness of the current investment vehicles and were also looking for leadership from asset managers.

While asset owners have capital to invest, they were conscious of costs, and could not throw the “intellectual powerhouse resources” that big asset manager could deploy to product innovation.

“A lot of people on the asset side of the equation are questioning if we are getting the balance right between risk and reward and where that balance should lie,” MacDonald said.

One area he highlighted was working with governments on long-term investment projects.

But he said institutional investors need to strongly articulate the fiduciary duty requirements that would shape any potential investment.

“We are not just a resource that can be turned off and on again like a tap,” he said.

“We are a resource looking to put major amounts of money into long-term projects but there has to be a reward for illiquidity.”