Asset AllocationOctober 15, 2019

UN Pension Fund to Divest Coal

$68 billion defined benefit pension vows to be carbon free by 2020.

Reported by Michael Katz

The $68 billion United Nations Joint Staff Pension Fund’s (UNJSPF) Office of Investment Management said it will divest from investments in publicly traded coal companies by the end of next year and will not make any new investments in coal across all asset classes.

“We already exclude tobacco as well as controversial and conventional weapons from our investment portfolio,” Sudhir Rajkumar, representative of the secretary-general (RSG) for UNJSPF Investments, said in a release. “And this is another step directed at maintaining a robust long-term risk-return profile of our investments consistent with our fiduciary responsibility.”

The fund said that coal as a source of energy is becoming less economically viable, and poses a financial risk to its portfolio as renewable energy costs are forecast to undercut commissioned coal “almost everywhere” by 2030. It said that creating a global energy system scenario consistent with the 2015 Paris Agreement would require the phasing out of coal, and that the divestment would contribute to reaching the 2015 United Nations Sustainable Development Goals (SDGs).

A recent analysis from climate website Carbon Brief, found that during the third quarter of the year renewable energy surpassed fossil-fuels in terms of electricity production in the UK for the first time since the advent of electricity.

In July, the pension fund appointed Hermes EOS, asset manager Hermes’ stewardship provider, to “strengthen its stewardship and engagement capabilities” as a key part of its sustainable investing goals.

The fund said it believes that institutions that are able to successfully integrate ESG factors in their investment decision-making processes can provide superior returns to those of conventional portfolios while carrying lower risk over the long term.

“Our approach to sustainable investing is therefore entirely consistent with our fiduciary responsibility to meet or exceed our Long-Term Investment Objective,” said the fund in a release.

Mark Carney, governor of The Bank of England, went even further, warning that climate change represents an existential threat to companies that ignore it.

“Firms that align their business models to the transition to a net zero world will be rewarded handsomely,” said Carney in remarks given during the UN Secretary General’s Climate Action Summit last month. “Those that fail to adapt will cease to exist. The longer meaningful adjustment is delayed, the greater the disruption will be.”

The fund provides benefits and related services to more than 200,000 staff and retirees of the United Nations and 23 other organizations admitted to membership in the fund. It has a long-term investment objective of 3.5% net of inflation annualized, which it has to achieve while remaining within approved risk tolerance parameters and meeting investment criteria mandated by the United Nations General Assembly.