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ESG Challenge: John Adler, NYC Office of the Comptroller Interview — Transcript

by Alliance for Responsible Capitalism · 3,493 words · 537 segments · language en · Watch on YouTube

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0:03hi thanks so much for joining us to
0:06start off could you introduce yourself
0:08and your role in the New York City
0:09controller's office yeah I'm John Adler
0:12I'm Chief ESG officer in the Bureau of
0:16asset management in the New York City
0:18Controllers
0:20Office and as we're talking about yes
0:24she the Pension funds you manage have a
0:26net zero Target for 2040 can you share
0:30the journey to setting those and also
0:31some of the strategy for achieving that
0:34uh sure um so let me just say New York
0:37City uh with the Controllers Office is
0:39investment advisor custodian and a
0:41trustee of five Pension funds for
0:44different groups three of the five have
0:47set a uh a goal of achieving Net Zero by
0:5120 240 that's um the teachers retirement
0:55system the New York city employees
0:56retirement system and the Board of
0:58Education Retirement System system so um
1:02we uh those boards started um really
1:07taking a serious look at climate risk uh
1:09around
1:112015 and then in
1:152018 they uh uh decided to uh study uh
1:22uh divestment from fossil fuel Reserve
1:25owners uh and they conducted they hired
1:28outside Consultants to uh study that
1:32question and the Consultants presented
1:35various options to the boards for um
1:38fossil fuel divestment consistent with
1:40their fiduciary duties and in
1:432021 the boards voted to uh divest from
1:48public equity and corporate uh fixed
1:51income public corporate fixed income
1:53securities in fossil fuel Reserve
1:56owners and um that process uh was uh
2:02completed uh uh it took about two years
2:04to complete so it's completed in 2023
2:07later in 2021 the boards considered and
2:11then decide those three boards decided
2:13to vote uh to set a a goal of achieving
2:19Net Zero by
2:212040 and um the reason they picked
2:252040 instead of uh
2:282050 which is sort of the um the date
2:32that's uh you know to the extent that
2:36economic players have uh set Net Zero
2:38targets mostly
2:402050 uh but the scientific
2:44consensus is that if um the global
2:48economy achieves Net Zero by
2:512040 we have about a a two3 chance of
2:56keeping uh global warming well below
2:59below 2 degrees Centigrade if uh it
3:03doesn't happen until
3:042050 then it's more like a 50/50 chance
3:08so the the boards decided to be more
3:11ambitious with the 20 240 goal in order
3:14to increase the chances of achieving um
3:18you know of keeping uh climate change
3:20well below two degrees and
3:24um the the other thing I would say about
3:27that goal is that the FOC Fus is not on
3:32um portfolio decarbonization it's on
3:36real world
3:37decarbonization so if you want to
3:39decarbonize a
3:41portfolio you can do that you know I
3:43don't want to say easily but you can do
3:45it uh relatively easily and quickly uh
3:49through you know manipulating your
3:51portfolio going into low carbon indices
3:55or other sort of low carbon Investments
3:58but that uh does doesn't necessarily
4:00have a real world impact and the reason
4:03that we uh are uh addressing climate
4:07change is because we believe that
4:10climate change poses a systemic risk to
4:13the Pension funds uh it's not just about
4:17you know the pension fund uh reducing
4:20its own exposures it's that if climate
4:24change continues unabated
4:27unmitigated uh the uh risk to the
4:30overall health of the global economy is
4:32enormous it's uh you know we're talking
4:36about you know trillions of dollars of
4:39of potential lost economic activity and
4:42you know we already see that of course
4:43with the ferocity of these recent
4:45hurricanes and other climate induced um
4:50disasters and so to address systemic
4:53risk we really have to decarbonize uh
4:55the planet not just you know our
4:58portfolio and that's really what the
4:59focus is so let me just do one more step
5:04which is when we when the boards voted
5:06to uh adopt The Net Zero targets they
5:09then charge the investment advisor that
5:11is the controller's office with coming
5:13up with implementation plans to put that
5:16into effect and so uh that actually took
5:19longer than we thought because we put a
5:21lot of work into it we um the boards
5:24approved those implementation plans in
5:272023 and so um the Controllers Office on
5:31behalf of the boards is now very busy
5:33implementing those plans uh for net hero
5:36in a number of uh number of different
5:38ways so I'll stop there amazing thank
5:42you you mentioned a bit about the
5:45systemic risk and also the fiduciary
5:47duty how does looking at the climate
5:50risk kind of affect the scope of of the
5:54fiduciary duty right so
5:58um we so
6:00our fiduciary duties which are laid out
6:02in the uh New York State uh law and
6:07Constitution uh it requires us similar
6:09to uh orisa but it's not covered by
6:13orisa requires us to uh invest for the
6:17sole exclusive benefit of our uh
6:19participants and and beneficiaries of
6:21the funds so everything that we do has
6:24to be towards uh maximizing long-term
6:30risk adjusted investment returns that is
6:32that's our job and
6:36um we believe that uh you know in order
6:39to best uh achieve our fiduciary duty we
6:44have to take uh uh climate change and
6:47other systemic risks into effect because
6:50the reality is that we are we have our
6:53our funds have a total of $275 billion
6:56in assets and we're long-term investors
6:59because
7:00these obligations to pay pensions extend
7:04effectively in
7:06perpetuity uh they certainly extend for
7:09many decades but the reality is that you
7:12know if uh if a worker came to work for
7:16the City of New York
7:18tomorrow um and is you know 25 years old
7:23and spends 40 years working uh for the
7:26city and then retires at age 65 and and
7:29then could live another 30 years so that
7:33that pension obligation would just for
7:35that one worker who comes to work
7:37tomorrow uh could extend out 75 you know
7:4170 75 years um and that's doesn't count
7:45the workers that start working 5 10 15
7:4920 years from now right the city is an
7:50ongoing entity so our obligations extend
7:54out in
7:55perpetuity and because we're so big we
7:59basically invest in the entire global
8:03economy uh and so what happens to the
8:06global economy is the biggest single
8:09determinant in how our Pension funds do
8:13we are are um uh statutory assumed rate
8:18of return is
8:197% and so in order to achieve 7% the
8:24economy has to
8:26grow uh so that our investments grow
8:30and if climate change stunts economic
8:33growth uh it will be very difficult to
8:36achieve the 7% rate of return which
8:39would make it very difficult for the
8:40City of New York to pay its pension
8:43obligations in the long run and so
8:46that's why addressing systemic risks
8:49like climate change Are We Believe
8:53essential to fulfilling our fiduciary
8:55duty to maximize our long-term risk
8:59adjusted investment
9:03returns and kind of speaking a little
9:06bit more to that we talk in like our
9:10programs of study a lot about the
9:12difference between um divestment and
9:16decarbonization they're kind of framed
9:18as opposing strategies and you talk also
9:20about real world decarbonization yeah so
9:23what what where is that line there and
9:25sure I mean we don't think of divestment
9:28decarbonization is necessarily different
9:31strategy but we think of divestment and
9:34engagement as sort of two sides of the
9:37coin and and many folks pit those as you
9:42can only do one or the other and we
9:44basically view them as tools in the
9:47toolkit uh and so the reason that the
9:50boards voted to divest from fossil fuel
9:54Reserve owners is because we did not
9:58think that in engagement with fossil
10:01fuel Reserve owners was going to change
10:04their behavior or uh you know their
10:08their business is you know uh extracting
10:13fossil fuels from from the earth and
10:15then selling them and sort of trying to
10:19get a fossil fuel Reserve
10:22owner to
10:25um to stop selling fossil fuels is sort
10:29of like like getting Starbucks to stop
10:30selling coffee right their business is
10:33selling coffee right and The Business of
10:36fossil fuel Reserve owners is selling
10:38their fossil fuel reserves by the way
10:40that's why we focused on fossil fuel
10:42Reserve owners because they the value of
10:45those companies is primarily in the
10:49reserves that they own which represent
10:51future profits um if those
10:55reserves uh you know are are become
10:57stranded as it were then the value of
11:00those companies you know is a fraction
11:02of what it is today so
11:06um you know so we had this
11:09very um sort of narrow framework for
11:14divestment in that case in other cases
11:18though we believe that engagement can
11:20get companies to reduce their uh you
11:23know their uh carbon exposure the
11:25greenhouse gas emissions um
11:29and so
11:31uh you know we believe that engagement
11:34in those cases can actually lead to
11:38decarbonization right and
11:41um however we maintain in our uh netser
11:46implementation plans that if engagement
11:51is unsuccessful and there are companies
11:54that can decarbonize that will not that
11:59we
12:00maintain divestment as an option and so
12:03and that's we also have a divestment
12:05policy two of the boards do that
12:08basically states that a divestment when
12:12engagement is futile is when it
12:15divestment comes into play and so that's
12:17our approach to divestment engagement
12:21and
12:23decarbonization yeah thank you and
12:26there's also disclosure requirement
12:29ments that are ever coming on board I
12:32know New York is working on proposing
12:34some how does that align with then kind
12:37of future engagement or how does that
12:39play a role well so you know the first
12:42step to uh any uh decarbonization or or
12:48broader climate strategy is uh you know
12:51understanding uh the the current state
12:53of play and so we uh call on all
12:57companies to disclose their greenhouse
13:00gas
13:01emissions uh including scope one scope
13:03two and scope three where scope three is
13:06material and you know most Emissions on
13:09the planet are scope three but that
13:11scope three is also uh subject to the
13:15least stringent disclosure regime so
13:17even the SEC climate disclosure rule you
13:21know which is currently being litigated
13:23in court but that does not require scope
13:25three disclosures only scope one and
13:27scope two however the California
13:29disclosure regime does require scope 3
13:32disclosure to the companies that are
13:34subject to it we totally support scope 3
13:38disclosure um and in our own um we have
13:42we are disclosing our own uh emissions
13:46uh you know of our portfolios scope one
13:49scope two and scope three and we've Set
13:52uh emissions reduction targets so far
13:55only for Scopes one and two because we
13:58only uh at this point we only have one
14:01year of scope 3 data so we don't have
14:03any trend lines we're we will be
14:05disclosing our
14:072020 uh four data uh in our next annual
14:11report which will probably come out
14:13early come out early next year for
14:162024 um so we'll have two years of of
14:19scope three data and then we intend to
14:23set a
14:24goal after 2025 data is in so we have
14:27three years of data on which we can
14:30start to begin to set our redu you know
14:33interm reduction goals on the way to Net
14:35Zero so anyway to your question
14:39disclosure is an absolutely essential
14:42First Step uh towards setting uh uh you
14:47know uh net zero plans or any other
14:51decarbonization plan you kind of have to
14:53know what your Baseline is and what your
14:55progress is and so that's an important
14:57part of our plan
15:00yeah and are there challenges that come
15:05with not just uh figuring out scope
15:08three but also in dealing with different
15:11backlash that's happening you mean the
15:14anti-g backlash yes oh sure I mean
15:17there's lots of challenges um you know
15:20at different levels um and you know and
15:23I'll say that the anti-g backlash is not
15:26just about uh climate uh there's other
15:30elements to it as well um but as far as
15:33climate goes you know first of all um
15:38you have uh managers investment managers
15:41right so our funds are totally managed
15:43externally by investment managers in
15:46public markets and in private markets
15:48and in particular in public markets a
15:50lot of the managers have been uh you
15:54know subject to attacks and criticism uh
15:59for uh for what they have done on
16:01climate and as a result a number of them
16:04especially the largest ones have been
16:06backsliding on their climate
16:08commitments um and so you know our
16:11largest asset manager is Black Rock um
16:15and black rock has been sort of the
16:16poster job for the
16:18anti-g movement and they've been called
16:21oil and gas boycotters and all this
16:23stuff which you know we really think is
16:25laughable because um you know the
16:28reality is that Black Rock has um
16:31totally uh backed away from the climate
16:34commitments they made starting with
16:35Larry Fin's declaration in 2020 that
16:39climate risk is Financial Risk and we
16:42totally agree that climate risk is
16:44Financial Risk and that you therefore
16:46have to take climate risk into account
16:49uh and we believe black rock has not
16:50been doing its part as the largest asset
16:54manager in the world to um pursue
16:59um you know uh a course of action that
17:03would be consistent with the belief that
17:04climate risk is Financial Risk
17:07um a number of other large asset
17:11managers have sort of backed away from
17:14climate commitments whether it's
17:15withdrawing from climate action 100 plus
17:18or whether it's uh reducing their
17:20support for uh shareholder proposals uh
17:25that address climate risk uh there's
17:28just a number of ways in which um you
17:31know it's had an impact on the financial
17:34uh industry let me put it that
17:37way
17:39so yeah are there further policies that
17:45like is there a role that policy can
17:46play in having companies more or so
17:50adhere to well absolutely I mean the
17:53reality the reality is
17:56that you know
17:59we're kind of using finance and
18:03Investments as a substitute for what
18:06really should be government policy I
18:08mean the reality is that all this stems
18:11from the fact that um you know emitting
18:14carbon into the atmosphere is
18:18free and um so this enormous
18:23externality that um you know economic
18:26players from giant corporations to you
18:29and I are um are
18:33creating uh we don't pay for uh we don't
18:36pay for as as the emitter we pay for it
18:41you know
18:43indirectly and it really should there
18:46should be a government policy I mean the
18:47first and foremost government policy
18:49should be putting a price on carbon so
18:52that emissions are not
18:53free uh and and from that single
18:59uh policy
19:01failure uh all these other problems step
19:04now I'm also you know a
19:07realist and recognize that uh the
19:11politician that puts a price on carbon
19:13or the politicians plural that put a
19:16price on carbon in the United States are
19:19not likely to hold elected office very
19:21long uh and
19:24unless uh the policy is paired with with
19:29um you know a way to give relief to
19:33those that need it um you know so
19:38uh anyway uh this is in our current uh
19:43state of polarized politics I think the
19:45likelihood of there being um a the
19:49ability to put a price on carbon in the
19:51United States is very long way off that
19:54is the fundamental problem now absent
19:56that even if you say okay we can't do
19:59that does that mean we can't do anything
20:00no of course there's lots of other
20:02policies that could be put in place uh
20:04the IRA is an excellent start um and
20:07creating the incentives to invest in uh
20:12you know Green energy and other Green
20:14Technology uh uh is is you know a really
20:19good step in the right direction um
20:21obviously there's many other things that
20:23could be done we still there's still a
20:25tremendous subsidy on oil and gas
20:29uh and you know uh the reality is that
20:32we don't have a unified uh sort of
20:35Common Sense policy that will um you
20:40know comprehensively address climate
20:43change and that's why Finance is sort of
20:45stepping into that void but Finance is a
20:49is an inadequate tool to do it by
20:51themselves by by
20:53ourselves yeah yeah are there other
20:57actions that companies can do that can
21:01help play into figuring out either the
21:04financing side or you know coming
21:06together for Action well look I mean one
21:10thing is that there are all these
21:12companies out there that have Net Zero
21:16goals that are not taking don't have any
21:19kind of a concrete plan to achieve those
21:22goals uh and um you know we have called
21:26on uh the companies in our portfolio to
21:29set science-based targets science-based
21:31targets are targets that are based on uh
21:35you know the scientific consensus around
21:37what's necessary to keep the world to
21:40well below two
21:41degrees um and that are validated by an
21:45independent non-governmental
21:46organization called the science-based
21:48targets
21:49initiative um the reality is that not
21:53enough companies that have material ghd
21:57emissions are setting uh science-based
22:00targets and that that's a big problem so
22:02you know every company should set
22:04science-based targets and create a
22:06transition plan to get to Net Zero or
22:10get to uh you know a science align
22:13pathway um one of the uh one of the big
22:17issues is that you have companies that
22:20have
22:21Set uh uh you know a goal of Net Zero by
22:262050 but then lot lby against government
22:31policies that would help achieve that
22:33goal so uh you know one of the um
22:39initiatives is to get is to ask
22:41companies to get companies to make sure
22:43that their lobbying is aligned with
22:45their climate goals because you know
22:48many cases that's not the case and it's
22:50hugely problematic
22:53um so there's a couple of
22:56examples amazing thank you
22:59I think last question is are there any
23:02final points you'd like to add or a
23:04message you would want to leave us
23:06with well look I think that um you
23:11know the anti-g
23:15movement which is largely it's led by um
23:20you know Red State elected
23:23officials and you know we believe uh
23:26primarily financed by
23:29fossil fuel interests who have an
23:30interest in
23:32slowing uh the energy transition and and
23:35uh you know keeping uh us pumping oil
23:39and
23:40gas uh forever or at least as long as
23:43possible
23:45um that that movement does not
23:49represent um
23:52the will of the majority of of people in
23:55the United States let alone the rest of
23:57the world
23:59uh and it it's full of contradictions I
24:02mean the folks that espouse it say that
24:05they
24:06support uh a free market capitalism
24:09except when capitalists allocate capital
24:12in ways they don't like and they support
24:14freedom of speech except when the speech
24:17uh uh you know advocates for things that
24:20they don't like and um you
24:24know they also claim they're for
24:27fiduciary duty except they breach
24:30fiduciary duty by uh saying that some
24:34some of their priorities are more
24:36important than uh you know maximizing
24:38risk risk adjusted returns so there's a
24:42lot of contradictions and um you know we
24:46are
24:47Fierce advocates for um ESG because
24:54ESG will uh uh support or will
24:58improve sustainable long-term investment
25:01returns which is what we need to
25:03accomplish in order to be able to uh
25:07have the city of New York pay its
25:08long-term pension obligations so you
25:12know
25:15unfortunately these folks use
25:18their
25:20um you know government posts to uh
25:25bully uh players in the financial
25:27industry and in the uh in the economy to
25:32uh you know try to force them to take
25:36the positions that they want them to
25:37take instead of using
25:41their uh business Acumen to make
25:44appropriate decisions about their
25:47businesses about their businesses let me
25:49just put it that way and I think
25:52that uh you know it's imperative that
25:56folks stand up and say
25:59hey
26:01um
26:03ESG addressing ESG is addressing
26:07Financial Risk and that's what we are
26:09supposed to be doing with the capital
26:11that's entrusted with to us and um I
26:17just think that uh allowing these folks
26:21to
26:24um you know uh interfere
26:29with uh uh economic players ability to
26:38um how do I put this ability
26:40to uh uh behave and act in the way that
26:45they think makes the most sense for
26:47their business is fundamentally uh wrong
26:52and and and and truthfully needs to be
26:56resisted uh by economic players and
26:59stopped by political players I guess
27:01that's my little soap box so amazing
27:05thank you so so much
27:08sure uh I hope it's uh helpful

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