Rhode Island Makes a Sustainability Deal with Archer Daniels Midland

Rhode Island Treasurer Seth Magaziner has reached an agreement with agriculture processor Archer Daniels Midland over its greenhouse gas emissions.

The crop producer will now examine the feasibility of adopting quantitative, company-wide policies for cutting the pollutants and expanding its renewable energy.

“Pension funds are long-term investors,” said Magaziner. “Companies, especially those as large as Archer Daniels Midland, must have a plan to adapt their business model to reduce dependence on fossil fuels. A transition to renewable energy can help stabilize and reduce energy costs—freeing up corporate resources that can be invested for sustainable growth.”

Archer Daniels Midland will now publish a report on the cost of greenhouse gas reductions by the end of Q1 2020, which will be publicly available.

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“We regularly engage with companies with whom we invest in order to advocate for practices that we believe are in the long-term interest of our shareholders,” Evan England, the state Treasury’s communications director, told CIO. “Particularly that’s around areas where long-term sustainability can be called into question by certain practices.” These include environmental concerns, board diversity (racial and gender), and executive compensation issues.

According to the Treasury, boosting renewable energy use helps companies with price volatility while also prepping them for carbon reduction regulations and energy efficiency standards such as the Paris Agreement. Pension funds such as the California’s two mega-institutions, CalPERS and CalSTRS, and New York City’s five retirement plans, are tremendous advocates of environmental, social and governance (ESG) initiatives, which enhance the sustainability moves for the businesses they are vested in.

“This is a company where we knew that they had a reputation for integrating environmental sustainability in their business practices but they didn’t actually have a company-wide goal for increasing their use of renewable energy,” said England, regarding Archer Daniels

Magaziner had filed a shareholder proxy last year urging companies it invested in to advance sustainability practices and adopt more responsible proxy voting policies. Toward the end of 2018, the Treasury had pushed a proposal urging Archer Daniels shareholders to demand better ESG decisions. After Archer Daniels approved of the idea, Magaziner withdrew the suggestion.

The Treasury handles the investment decisions of Rhode Island’s $8 billion local and state government worker pension plans and currently holds about 121,000 shares of Archer Daniels Midland, according to England. The Treasury will continue to work with Archer Daniels regarding its policy changes.

Archer Daniels Midland could not be reached for comment.

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Tags: Archer Daniels Midland, ESG, proxy voting, Rhode Island, Seth Magaziner

The Teachers’ Retirement System of Texas is beginning its strategic asset allocation study, which investment advisor Dr. Keith Brown of the University of Texas noted is “the most important decision that [the board] is going to decide,” during a recent board meeting initiating the procedure.

The board is expected to complete the procedure by the end of the year, beginning with a survey of its consultants on projected returns for several asset classes. Capital markets assumptions collected from its consultants are summarized below:

The study is conducted at least every five years, a spokesperson for the pension told CIO. The asset allocation implemented in 2014 resulted in decreases in target allocations for US and Non-US developed equity, global inflation-linked bonds and US Treasuries (-2% each), emerging markets and directional hedge funds (-1% each), and increases in alternative strategies such as private equity (+2%), real assets (+3%), and risk parity (+5%).

Materials presented to the board noted that “metrics indicate the current strategic asset allocation is good… can we do better?” The current allocation “offers a better risk/return profile than any stock/bond combination…appears to be well-positioned versus US peers…but insight from Canadian plans and endowments may present opportunities to improve.”

A proposed strategic asset allocation will be evaluated to make sure the plan is “meeting the trust’s objectives to control risk and achieve a long-term rate of return that exceeds our actuarial rate of 7.25%, the inflation rate +5%, and the return of the trust’s benchmark,” a spokesperson told CIO. After receiving recommendations from consultants, other stakeholders, and the strategic asset allocation group, the board of trustees will be responsible for approving the new asset allocation.

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The pension recently appointed two officials from the Teacher Retirement System of Illinois and the California State Teachers’ Retirement System to oversee the pension’s emerging manager program and lead as the new chief operations and administrations officer, respectively.

The $153 billion’s plan’s most recently available asset allocation metrics to the public is as follows:

The TRS closed out 2018 in blockbuster fashion, committing over $1.8 billion across more than a dozen strategies, primarily focused on real estate and infrastructure.

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Tags: Kieth Brown, Pension, Texas, Texas Teacher Retirement System (TRS)