The New York State Insurance Fund, or NYSIF, substantially increased its pace toward sustainability through the divestiture of its coal assets to a responsible investment exchange-traded fund.
The re-allocation had reduced its carbon exposure for the equity portfolio into about 40% and showed quite noteworthy changes towards centering its investment strategies in line with the climate action goals.
Alignment to seek immediate impact
We were looking for quick wins by shifting parts of our portfolio toward goals like reducing emissions,” said Rajith Sebastian, head of ESG and Sustainable Investing for the $20 billion state fund. He was speaking at the Reuters NEXT Newsmaker event in New York yesterday. It’s recognition that the impact of climate change has to be acted on immediately.
As part of this policy, NYSIF has adopted rigorous screening procedures that will expel any company or asset manager whose revenues exceed 1% from sources linked to coal mining. Such a policy ensures consistency with New York’s other climate action initiatives while significantly strengthening the commitment to responsible investing by the fund. Distance from investments related to coal will be achieved as NYSIF acts on current issues-related concerns about fossil fuels and their impact on the environment.
Launching a Responsible ETF
Asset reallocation by the fund has also been seeding the newly launched Calvert U.S. Large-Cap Core Responsible Index ETF. While this decision initially exposed the firm to some internal debate, since it would increase exposure to a single investment, the long-term benefits from alignment with ESG goals superseded such reservations.
The first challenge Sebastian realized was not actually a challenge from the outside stakeholders but their own internal resistance: “We got a lot of backlash internally. We didn’t even publicize it because we thought, let’s do this, it’s impactful.” Sometimes that proves to be an issue since many of the conventional strategies leave the environment in the long run for short-term gains.
Adjusting Holdings for Greater Impact
The transition by NYSIF has seen about 50 percent of its $354 million in assets now lie within the responsible ETF, far removed from 95% allocation at the on-set. Part of a wider push by NYSIF to try and catch up with New York’s much larger public-sector pension funds, where the latter have been out-in-front in their climate action plans.
According to Sebastian, this commitment to difference was what the fund had been focused on as part of its responsible investment approach. “That reallocation allowed us to do that, but it actually set a foundation for further responsible investments,” he said. This kind of proactivity underlines why integration of sustainability considerations into investment decisions is important, and ESG can indeed align with financial performance.
The Wider Context of Responsible Investing
The NYSIF move to a responsible ETF is one indicator of a wider trend in the investment community as environmental awareness and concerns continue to find their way into investment considerations. With greater awareness over the risks implicated by climatic changes and the necessity of sustainability, funds like NYSIF spearhead the change in traditional investment modalities.
Also, this move resonates well with New York’s aggressive climate action targets in support of cutting green house gas emissions as well as fostering sustainable development. Actions by the NYSIF could serve an inspiration to other state funds and institutional investors who might themselves take similar steps toward responsible investing.
Conclusion
Such a decision by the New York State Insurance Fund to risk-proof its portfolio by finally opting out of coal assets would be a beacon for the financial industry to look toward in the future. The shift not only creates immediate climate benefits due to reduced carbon exposure but also presents long-term foundations for financial stability through responsible investments.
The experience of NYSIF also indicates this is one area where institutional investors may strongly collaborate in order to deal with the issue of climate change while also offering financial returns. This is a critical step toward building up the direction for strategic ESG investments toward a better sustainable future.
The coming year may be the day and age where more and more organizations take the NYSIF way of integrating environmental considerations into investment strategies, which may be the exception rather than the rule in pursuing sustainability and responsibility-based investment landscape.