The managers of Maryland’s pension fund have begun considering the impact their investments have on climate change and how to minimize the carbon footprint of the state’s $45 billion portfolio.
The state’s chief investment officer told lawmakers Wednesday that the pension system is weighing how efforts to reduce greenhouse gas emissions could lower the value of some of its investments and how to shift more money to environmentally friendly industries, like renewable energy.
Members of the General Assembly requested the briefing as large investors around the country increasingly sell assets linked to fossil fuels and urge companies to reduce emissions.
The pension system has not made changes in its investment strategy. But officials are incorporating more questions about climate change impact into their decision making, said Andrew Palmer, who oversees investments made by the system that covers state and local government employees, police, teachers and judges.
“If it’s a risk to the system, we need to think of it like any other risk and incorporate it throughout our entire process,” he told the Joint Committee on Pensions, a legislative panel that oversees the state pension fund.
In addition to considering climate change in its vetting process for investment, Palmer said pension trustees are being educated on the ways climate change can affect investments. They must consider both how federal and international efforts to reduce carbon emissions might reduce the value of assets linked to oil, coal or heavy manufacturing, for example, and also what potential might lie in technologies that will be necessary “to transform to a low-carbon world,” he said.
It can be difficult to gauge an investment’s carbon footprint because companies are inconsistent in the amount and detail of information they publicly release, state Treasurer Nancy K. Kopp said. Kopp is involved in national efforts to establish standards for what companies must disclose to explain their environmental impacts.
“Without that, it’s very hard to do much of anything as far as knowing what to invest or not invest in,” she said.
But it is expected to get easier as more large investors begin considering climate change, said Nick Ashburn, senior director of impact investing at the Wharton Social Impact Initiative at the University of Pennsylvania.
Among the first to prioritize environmentally conscious investing were universities, pressured by students, and wealthy individuals with a sense of social responsibility, he said. But increasingly, large investors like pension funds are raising the same questions, placing more pressure on companies to explain in more detail how they affect the environment, he said.
United Nations Secretary General Ban Ki-moon in 2014 called on pension funds to cut investments in oil companies and back renewable energy ventures instead.
A California law approved last year required that state’s pension systems to divest from coal. Cities including Seattle, Oakland and Minneapolis have also taken steps to sell off assets tied to fossil fuels. And since 2012, more than 500 universities around the world have divested from fossil fuels.
Other systems are using their power as investors to promote change, rather than pulling their money out altogether. California’s pension system recently launched a push for companies in its portfolio to add climate change risk experts to their boards of directors, for example.
New York state Comptroller Thomas P. DiNapoli announced in August agreements with companies in the state retirement fund’s portfolio, including retailers Best Buy and Nordstrom and energy producers Allete and NorthWestern Energy, to explore low-carbon and renewable energy sources. The state is among many ExxonMobil investors pushing the energy giant to reduce its carbon footprint.
Palmer said the Maryland system is exploring how it can exert similar pressure on companies in its portfolio, but that limited resources would make it difficult.
For example, California has a $3 million budget for staff dedicated to environmentally and socially conscious investment decisions — half of Maryland’s entire budget for managing pension investments, he said.