The San Francisco Employees’ Retirement System’s (SFERS) retirement board voted unanimously to adjust the pension’s Climate Action Plan to make its $27 billion portfolio net carbon zero by 2050.
“This future-focused proposal will build on SFERS current efforts to manage the climate transition risks of fossil fuel assets and lead the way for institutional investors to commit to a more sustainable future,” SFERS said in a press release.
The move is the latest in major steps being taken by organizations around the world pledging to do the same thing, as the risk of being invested in fossil fuel assets as peer groups divest can be a dent in their return profile over the long-term – aka the “stranded assets” theory.
Among those that have pledged to go carbon neutral are Denmark’s PFA pension fund, the New York State Common Retirement Fund, the Netherlands’ ABP pension fund, Ernst & Young, and a large international coalition of investors representing $2.4 trillion in assets.
“Identifying, assessing, and addressing the investment risks and opportunities associated with climate change is a key provision to sustain the long-term health of the SFERS trust and the payment of those benefits,” SFERS said in a statement.
The pension has taken substantial measures to counteract the effects of climate change-related risk to its portfolio. In 2015, the board approved a $100 million investment in an index that excludes companies that own fossil fuel reserves, as well as approving wide-ranging restrictions in investments in companies that derive significant revenue from the mining of thermal coal.
Additionally, the board adopted a “carbon constrained” strategy for $1 billion of SFERS’s passive public markets portfolio, hired a new director of environmental, social, and governance (ESG) investment, and divested and restricted future positions in seven oil and gas companies that warranted the highest climate transition risk to its return profile.
As part of its $1 billion commitment, SFERS committed $500 million to a passive public equities strategy managed by Goldman Sachs that has at least 50% lower emissions than the Russell 1000, and returned 10.2% in the year ending June 2019, outperforming its benchmark by 18bps.
SFERS strategizes to engage with companies to encourage them to strategically incorporate considerations of climate risk into their strategy, governance, and operational management. The pension also has a thesis to divest from companies that it considers to have “high, unmitigated risk due to climate change.”
“SFERS manages its portfolio in recognition of scientific probabilities and severity and their impact on risk and return,” said William Coaker, SFERS chief investment officer.
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