In a recent turn of events, the atmosphere surrounding Earth Day proved tense for many U.S. environmental organizations, fueled by speculation that former President Donald Trump would issue an executive order stripping them of their tax-exempt status. However, the day concluded without such a drastic measure. It remains uncertain whether Trump reconsidered or was distracted by other pressing issues, such as challenges involving his defense secretary or the Federal Reserve. Nonetheless, climate advocacy groups should remain vigilant.
In New York, environmental activists took to defacing the iconic Charging Bull statue in Wall Street with green paint, only to clean it up afterward. Meanwhile, Brad Lander, the city’s comptroller, expressed his support for climate organizations and issued a stark warning to asset managers, signaling that his message would likely resonate throughout the financial sector.
Sustainable Investing
New York Pension Funds’ Green Warning Shot for Asset Managers
BlackRock, recognized as the largest asset management firm globally, has faced significant criticism from various political factions in recent years. Recently, the remarks made by New York City comptroller Brad Lander were particularly alarming. Lander noted that while some asset managers previously took climate change seriously, many have since regressed, using BlackRock’s decision to withdraw from green investment alliances as a prime example. “We have certainly let them know how displeased we were about that,” he remarked.
Lander, who manages New York City’s substantial public pension funds, issued a stern warning to asset management firms handling their investments: align with the funds’ climate objectives or risk losing their contracts. Three of the five primary pension funds, with combined assets of $235 billion, have pledged to achieve net-zero financed carbon emissions by 2040. These funds are requiring all external asset managers involved in public markets to submit comprehensive plans detailing their own net-zero strategies by the end of June. Failure to provide adequate plans will lead Lander to recommend opening the contracts to competitive bidding.
This warning reflects a broader trend, as previously highlighted. Many prominent U.S. asset managers have become less vocal on climate matters, facing criticism for perceived “woke capitalism” from Republican legislators, while some conservative state officials have terminated business relationships with them. However, the looming threat of losing contracts with pension funds, which seek active engagement on climate issues, may shift this narrative. For instance, the UK’s People’s Pension fund withdrew a £28 billion ($37 billion) investment mandate from State Street after assessing its sustainable investment policies. Additionally, a coalition of UK pension funds managing $1.5 trillion warned that they might sever ties with asset managers that do not engage with companies regarding climate risks.
Lander’s warnings indicate that similar risks exist in the U.S. For asset managers lacking robust climate action plans, the potential loss of business from New York’s pension funds could be detrimental. Notably, BlackRock manages $16.8 billion for just one of these funds. New York’s public pension systems rank as the largest in the U.S. outside of California, where funds like Calpers and Calstrs, while not yet issuing explicit warnings like Lander’s, continue to underscore the importance of climate considerations.
According to Lander, asset managers must meet specific expectations regarding their climate strategies: they should actively engage with portfolio companies to foster genuine decarbonization efforts, incorporate relevant climate-related risks and opportunities into investment decisions, and adopt a comprehensive stewardship strategy that prioritizes engagement and voting to promote decarbonization. Furthermore, these managers will need to set clear climate expectations for all companies within their portfolios, compelling them to establish net-zero goals and transition plans.
While Lander’s requests are broadly defined, they afford his team considerable discretion in determining whether asset managers comply with the new standards. Should he pursue significant reforms, critics may accuse him of political posturing, especially given his candidacy for New York City mayor in the upcoming election. Approval from the pension fund boards will also be necessary for any recommendations to take effect.
Nonetheless, Lander’s assertion that “climate risk is financial risk” holds weight, particularly for the multi-trillion-dollar pension fund industry, which has an obligation to safeguard the interests of beneficiaries for decades to come. It is worth noting that not all beneficiaries may prioritize climate initiatives, as evidenced by the New York pension funds for police and fire departments, which have yet to adopt net-zero goals. However, as pension funds navigate the long-term consequences of climate change and the transition to sustainable energy, their asset managers should prepare for increasingly challenging discussions ahead.
Smart Reads
Business leaders are reportedly planning to move operations closer to renewable energy sources, according to a recent survey. Meanwhile, economist Joseph Stiglitz argues that the U.S. has become the largest tax haven under Trump’s administration. In other news, OpenAI CEO Sam Altman has stepped down as chair of nuclear power startup Oklo to prevent potential conflicts of interest.
Recommended Newsletters for You
Stay informed with Full Disclosure, which covers significant international legal news, or subscribe to Energy Source for critical energy-related updates, analyses, and insider insights. For a comprehensive look at the intersection of climate change, business, markets, and politics, explore Climate Capital’s coverage.
If you’re interested in the FT’s commitments to environmental sustainability, find out more about our science-based targets.
