UN Staff Pension Details Net-Zero Plans | FundFire
By Dervedia Thomas | March 23, 2022
The United Nations Joint Staff Pension Fund has drafted a plan to achieve net-zero carbon emissions by 2050 that involves a combination of divestment and engagement efforts, its first climate disclosure report shows.
The plan involves reducing emissions in its equity and corporate bond portfolios by 40% from 2019 levels over the next three years.
The pension, known as UNJSPF, recorded a 32% dip in emissions last year in those portfolios compared to 2019 levels, exceeding a 29% goal set in 2020. The reduction stems from the pension divesting most of its fossil fuel holdings, representing $2 billion of its $87 billion in assets under management. UNJSPF also decided not to make any new fossil fuel investments in its public and private market portfolios.
Additionally, the pension determined that investments lacking “specific climate risk strategies are inadequate to secure the stability and growth of UNJSPF moving forward,” the report states.
The pension still has holdings in public companies that derive less than 10% of their revenues from fossil fuels or below 1% from thermal coal and are shifting their business models toward a low-carbon, Paris-aligned trajectory. These companies account for less than 1% of the fund's total assets, a spokesperson for UNJSPF said. The pension’s office of investment management, or OIM, intends to advocate for climate-related changes with these firms, and engaged 546 companies through stewardship specialist Hermes EOS in 2020. About 20% of its engagements focused on climate change issues, according to the report.
“Since the sale of these securities does not, in itself, reduce carbon emissions to the environment, OIM plans to bolster engagement efforts with the carbon-intensive companies it still holds investments in, encouraging them to plan for a rapid transition to a net-zero economy,” the report states.
Climate change and fossil fuel financing were key focuses during engagement efforts in 2020, according to the report.
“Banks remain a major source of funding for fossil fuel activities: investors have called on lenders to phase out the financing of those activities in particular through shareholder proposals,” the report states.
UNJSPF has finished “climate proofing” its public equities and corporate bond sleeves and will test its real estate holdings by the end of 2022, according to the report. Other asset classes will undergo testing by 2025.
The pension’ net-zero plan also includes setting up governance and management committees, identifying material climate-change risks, conducting scenario analyses and “reallocating of capital to the green economy.”
The end goal is to meet or exceed a 3.5% real rate of return, net of inflation, annualized over 15-plus years, while expanding its sustainable investment strategy.
Divestment is effective when it is public and part of a larger strategic framework where participants commit to re-investing divested proceeds into clean energy solutions, said Brad Harrison, co-lead of impact investing in the U.S. at wealth manager Tiedemann Advisors.
Investors should also make company management aware of the reason the divestment is occurring, he said
“It is true that existing projects may be sold to less-transparent private buyers, however, divestment can signal to company management that their next dollar should be spent elsewhere or returned to shareholders,” he said. “Divestment is not the only path, and certain investors may be able to create more direct climate-impact through direct shareholder engagement and active ownership.”
Disclosing progress to relevant stakeholders and teaming up with net-zero alliances is also part of the UN pension’s game plan. Asset owners and managers have been pushing their portfolio companies to disclose more information, and they may get a hand if the Securities and Exchange Commission’s new climate change proposal gets the greenlight.
Many public pension funds, including the three mega-public-pensions in California and New York City Employees’ Retirement System pledged to decarbonize their portfolios last year, as reported. Some are choosing to do so through a combination of divestment and engagement, but they may not have as much control over their processes if state lawmakers take action to speed up the process.
Lawmakers in California introduced a senate bill that aims to force the California State Teachers’ Retirement System, known as Calstrs, and the California Public Employees’ Retirement System to rid their portfolios of fossil fuels by July 2027.
Calstrs is pushing back, highlighting its “policy to oppose legislation that restricts or infringes on the plenary authority of the board to administer its retirement plans and infringes on the investment authority of the board.”
Similar legislation has already gone into effect in other states. Last summer Maine became the first U.S. state to require a public pension to divest from fossil fuels, and Baltimore’s three pensions have until 2026 to divest from fossil fuels under legislation signed last year, as reported.
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