Pensions pledge to invest in climate-resilient infra

Ten institutional investors with $1.3tr in assets say they are committed, but warn governments must help make investments attractive on a risk-return basis.

Some of the world’s largest pension funds and other institutional investors with combined portfolios of $1.3 trillion committed to identifying and evaluating investment opportunities in climate-resilient infrastructure.

The announcement came on the back of the United Nations’ Climate Summit held in New York City on Wednesday, in a collective statement and in individual letters addressed to UN Secretary-General Ban Ki-Moon.

According to the institutional investors, climate-resilient infrastructure includes assets that contribute to mitigating greenhouse gas emissions, reducing the vulnerability of affected communities and enhancing adaptive capacity.

In addition to their pledge, the pension funds – most of them from North America – called on policymakers to create frameworks that will facilitate private investment in such projects.

The recommendations they put forth require setting long-term strategies and policies that provide “credible” pipelines for climate-resilient infrastructure projects; providing incentives for such investments; strengthening regulatory frameworks through a stable and predictable rule of law; ensuring rate-setting policies are fair and transparent; and encouraging the recycling of capital by having financial institutions and development banks finance the development of such projects, with institutional investors buying the assets once they become operational.

“Climate-resilient infrastructure assets with stable long-term returns can be attractive investments for pension funds and institutional investors, providing a good match for their long-duration, rate-sensitive liabilities,” the investors wrote. 

“To attract capital, these infrastructure investments must compete favourably on a risk-return basis against other investment options,” they said, by providing adequate returns for the risks assumed, and by fitting within investors’ mandates, risk appetite and capabilities.

Participants in this initiative from the US included the country’s largest public pension fund – the California Public Employees’ Retirement System (CalPERS); the California State Teachers’ Retirement System (CalSTRS); the New York City Comptroller’s office, which serves as investment advisor and custodian of the five funds comprising the $160 billion New York City Retirement System (NYCRS); and the New York State Common Retirement Fund.

Canadian signatories were The Ontario Teachers’ Pension Plan (OTPP), the British Columbia Investment Management Corporation (BC IMC), and Alberta Investment Management Corporation – among the country’s leading institutional investors.

PensionDanmark, which has $30 billion in assets under management, was the only European pension fund taking the pledge.The remaining two investors were the $130 billion Government Employees Pension Fund (GEPF) of South Africa and the New Zealand Superannuation Fund (NZSuperFund).

In its individual letter, the $22.4 billion New Zealand fund noted that it has already been taking action in regards to climate change.

“We are committed to a long-term strategy to increase the Fund’s exposure to low carbon and renewable energy,” NZSuperFund had stated in its latest annual report, which it included in the letter to Ki-Moon.

Among the initiatives the New Zealand fund has already taken include encouraging companies in which it invests to manage climate change risks through its long-term participation in the Carbon Disclosure Project and the Investor Group on Climate Change.