Giant Investment Coalition Call for Climate Action From G20 Leaders

Alliance of pension and other institutional investors, managing $34 trillion, is worried about “ambition gap” in meeting Paris Agreement’s goals.

A near-500 member institutional investor group, responsible for more than $34 trillion in assets under management, is demanding world leaders address climate change ahead of the upcoming G20 meeting in Osaka, Japan.

The group wants the global chiefs, who are meeting Friday and Saturday, to follow the goals of the Paris Agreement, which wants the world to cut its carbon levels so the global temperature rises below 2°C above pre-industrial levels each year, according to its letter.

As it stands, the investor coalition is concerned that the world’s nations are falling short of the climate accord’s goals. The group calls this an “ambition gap,” and said further neglect of the Paris Agreement’s mission would lead to “an unacceptably high temperature increase that would cause substantial negative economic impacts.”

The coalition’s 477 members include big pension funds and asset managers such as Caisse de dépôt et placement du Québec, the California Public Employees Retirement System, the California State Teachers Retirement System, Aberdeen Standard Investments, and various political figures.

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The group pointed to its individual efforts to push companies in their portfolios to adopt better climate reporting and implement recommendations in the Financial Stability Board’s Task Force on Climate-Related Financial Disclosure.

It is asking world leaders increase their commitment to the Paris Agreement’s goals, such as limiting temperature increase to 1.5 °C by next year, via a long-term carbon reduction framework, and to improve climate-related financial reporting in corporations.

This also follows United Nations Secretary General António Guterres’s May call that countries build “no new coal power plants after 2020,” the group’s letter said.

“Climate change affects all sectors of the economy and all countries,” said Christiana Figueres, Convener of Mission 2020 and former executive secretary of the United Nations Framework Convention on Climate Change.

Investors and mega funds can only do so much to push companies to engagement, thus the need to engage the G20 leaders.

“We need the governments of the world to implement the Paris Agreement and regulate emissions on a clear timeline so that businesses know what the interim targets are and the timeline for their action,” CalSTRS chief executive officer Jack Ehnes said.

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A volatile fourth quarter of 2018 erased the year’s gains for the Pennsylvania State Employees’ Retirement System (Penn SERS) as its portfolio ended the calendar year down 4.6%, compared with a 2017 calendar year return of 15.1%.

It was the fund’s worst calendar year investment performance, and the system’s first annual loss, since 2008, when the financial crisis sent the portfolio tumbling 28.7%. The retirement system ended 2018 with 20-, 25-, and 30-year returns of 6.0%, 7.7%, and 8.4% net of fees, respectively. The retirement system’s unfunded actuarial liability was $22.8 billion, giving it a funded ratio of only 56%.

The 56% funded level means the system is considered to be in “critical status” as defined under the Pension Protection Act of 2006. However, Penn SERS said that its current projections indicate that in a little over a decade, the funded ratio will reach 80%, which is generally accepted by pension experts as healthy.

Private equity was the top-performing asset class in the portfolio during the year returning 11.4%. However, it was the only asset class to earn positive gains except for cash, which earned 2.1% for the year. Legacy hedge funds were the worst-performing asset class, losing 13.7%, followed by global public equity, which lost 10.4%, and real estate, which was down 2.3%.

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The 4.6% loss for the calendar year is indicative of the rough second half of 2018 for investments, as Penn SERS’ portfolio had earned an 8.6% return for fiscal year 2018, which ended June 30.

The fund said that last year’s volatility led to an unanticipated delay in the pace of employer contribution reductions. It said that employers will contribute 33.5% of payroll in fiscal year 2019-20, which is estimated to generate $2.1 billion. SERS employer contribution rate is now expected to peak at about 34.9% in fiscal year 2022-2023, but remain above 20% until fiscal year 2040-2041.

A state pension reform law that was enacted in 2017 includes a “savings plow-back” provision that requires any annual savings achieved through SERS’ benefit changes to flow back into the system rather than to the state’s non-pension budget obligations. SERS said it expects plow-back contributions in 13 of the next 23 fiscal years, which it said should accelerate the system’s return to fully funded status.

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