In recent months, several major banks and asset managers in the United States have withdrawn from net zero networks that advocate for ambitious carbon reduction targets and international collaboration on sustainability. However, shortly after Donald J. Trump was re-elected in November, the New York City Employees' Retirement System (NYCERS) decided to join a United Nations-affiliated climate action group known as the Net Zero Asset Owner Alliance.
According to Brad Lander, the comptroller overseeing the pension fund and currently running for mayor, the timing of the decision was not deliberate but was seen as an important signal. He emphasized the necessity for pension funds and large asset owners to engage in collective action during this critical period.
Pension funds, particularly in blue states and Europe, are increasingly standing firm against efforts to diminish climate-related risks amidst a growing backlash against environmental, social, and governance (ESG) goals. These funds, which are positioned at the top of the investment hierarchy, have intensified their engagement with asset managers and corporations regarding climate goals, maintaining their public commitments to utilize their financial power to lower carbon emissions. In some instances, they have shifted their investments towards European asset managers, who have not retreated from climate commitments as much as their American counterparts.
Lander's office manages the investments for five public pension funds that serve 700,000 current and former city employees. The funds are actively pursuing engagement strategies, including shareholder resolutions aimed at requiring banks to disclose their fossil fuel investments versus clean energy, as well as utilities companies on their climate objectives. A recent court ruling that dismissed a lawsuit against three of the funds for divesting from specific fossil fuel investments has further strengthened their resolve.
Lander and other pension fund managers assert that their motivations are not purely political or environmental. Instead, their focus is on ensuring long-term sustainable returns for individuals who may not retire for decades, thus keeping climate risks at the forefront of their investment strategies.
The Net Zero Asset Owner Alliance has been characterized as prioritizing fiduciary duty over activism, as stated by Peter Stensgaard Morch, the CEO of PensionDanmark. In contrast, other institutions are beginning to relax their climate commitments. A net zero group for banks is contemplating withdrawing their pledge to align with the goal of limiting global warming to 1.5 degrees Celsius. Additionally, some major energy companies, such as BP, have scaled back their renewable investments, and the European Commission has proposed easing climate reporting requirements for companies, citing concerns about excessive regulation hindering economic growth.
The U.N. asset owner group, which includes a variety of long-term investors, has shown resilience compared to its peers. Asset managers are facing pressure from clients in both blue and red states, leading some to withdraw from previous climate commitments. The group for asset managers, previously including BlackRock, has suspended its activities, while the net zero group for banks has lost 17 significant members in the last four months.
Political and legal pressures in the United States, especially from red states with anti-ESG legislation, have compelled asset managers to abandon climate action groups, thereby widening the gap between American and European sustainability efforts. The People’s Pension, a British fund managing around £32 billion in assets, recently transitioned most of its assets away from State Street to Amundi and Invesco, seeking asset managers with strong sustainability credentials.
A group of 27 European pension funds has recently urged global asset managers to enhance their stewardship practices in addressing climate change risks and to remain engaged in collaborative efforts. This call for action is supported by a study indicating that asset owners prioritize long-term climate risk identification more than the asset managers they hire.
Despite some progress on climate action, challenges persist due to short-term pressures, such as rising energy prices. Diandra Soobiah, head of responsible investment at Nest, a British state-backed pension fund, noted that these pressures influence progress but emphasized the importance of managing long-term risks.