It is, I think, suggestive of something that so much “climate action” depends on spending, directly or indirectly, other people’s money without the degree of consent and/or democratic approval that ought to be expected given the sums involved (something, incidentally, that also holds true for the expensive burden that will be heaped on companies and individuals as a result of climate-related regulatory action). This also applies in many areas of finance, not least in the way that investor funds, retirement savings, and monies earmarked for pensions are increasingly being deployed.
And so, via News 10 ABC (WTEN), here’s one example of how that works:
The New York State Common Retirement Fund will invest $2 billion into the Climate Transition Index (CTI) focused on reducing the risks of climate change, announced State Comptroller Thomas P. DiNapoli. This is part of the Comptroller’s Climate Action Plan and his goal for of net-zero greenhouse gas emissions by 2040.
“The New York State Common Retirement Fund has been recognized for leading the way with its comprehensive approach to addressing the enormous challenges posed by climate change, as well as investing in the tremendous opportunities created by global efforts to address this crisis,” said DiNapoli.
He’s not wrong, you know. Just the other day Xi Jinping was telling me how impressed he’d been by the lead taken by the New York State Common Retirement Fund (this is not the first time it has been active in this area) to combat climate change. “It is a tremendous example,” he acknowledged: It would lead him to change China’s ways.
Fact check: dubious.
The fund will allocate $2 billion within its internally managed public equity portfolio to FTSE Russell’s Russell 1000 TPI Climate Transition Index in connection with the Fund’s Sustainable Investment & Climate Solutions program.
“By using the Climate Transition Index, the fund will have an investment tool that incorporates a robust data-driven approach to invest in corporations that are ensuring their businesses are ready for the low-carbon transition and stand to perform well in the years ahead,” said DiNapoli.
It may also be buying into a green bubble by buying into this index at this point.
The rapid pace of growth in green investing raises the prospect of a bubble that could burst further down the road, according to the Bank for International Settlements.
Price-to-earnings valuations for clean energy companies are high and more analysis is needed to understand how green investing is playing out in the credit market, the Basel-based institution said in its quarterly report published on Monday.
History indicates that assets related to fundamental economic and social change may experience a significant price correction after an initial surge of interest, according to the BIS analysis, which took as its example 19th-century railroad stocks and the dot.com bubble…
To be sure, opinions can differ on the wisdom of a particular investment. Where there should be no disagreement is that the purpose of investing this type of money should be to generate maximum risk-adjusted financial return for those whose money it is, or those who money it will be, and, in the case of public pension funds, with the financial interest of the taxpayers who are often underwriting all or part of the pension liability firmly in mind. The one exception ought to be where those whose own monies (whether actual or potential) is on the line choose to sacrifice some return for other ends.
As for (financial) climate risk, it’s worth taking a look at this piece by John Cochrane for Capital Matters, and for more on games with pensions, check out Richard Morrison, also writing in Capital Matters, just today:
Economic policy is changing fast in Washington, and your retirement account may soon experience the whiplash. One of the best policies enacted by the previous administration was a rule that made it clear to the people who manage pension funds that, when selecting investments, they need to prioritize returns for beneficiaries instead of pursuing their own political agendas. Unfortunately, Joe Biden’s Department of Labor is currently in the middle of repealing that rule. This effort, while obscure to the average American, is part of a much larger effort to redefine the world of saving and investing to permanently serve progressive policy goals. That should alarm not just conservatives, but anyone who wants to be able to enjoy a comfortable retirement someday.