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Dive Brief:

  • New York City Comptroller Brad Lander recommended that the city’s three pension funds drop a trio of asset managers for failing to meet the climate expectation of the city’s net-zero implementation plan, Lander’s office said in a Wednesday release.
  • Lander recommended the city’s pensions move on from BlackRock, Fidelity and PanAgora in an update to the trustees of the city’s Teachers’ Retirement System, the New York City Employees’ Retirement System and Board of Education Retirement System.
  • The recommendation for the city’s pension plans to drop the asset managers comes after Lander requested all of the plans’ asset managers submit written plans on decarbonization strategies and incorporation of climate-related risks earlier this year. He warned then that asset managers who don’t meet the city’s expectations were at risk of being dropped.

Dive Insight:

Lander, whose term as comptroller ends at the end of the calendar year, said all 49 of the asset managers for the city’s pension plans submitted their decarbonization plans to measure their alignment with the city’s Net Zero Implementation Plan. However, following an evaluation of those plans, BlackRock, Fidelity and PanAgora’s plans did not meet climate expectations, Lander said. 

BlackRock is the pension system’s largest asset manager and currently manages $42.3 billion for all three pension plans, according to Lander’s letter to trustees. Fidelity manages $384 million for the TRS plan, and PanAgora manages $358 million for the TRS and NYCERS plans, according to the letter to the plans’ trustees. Lander said in the Nov. 26 release that the three asset managers “fail to address climate risk with the seriousness [the pension plans] expect.”

“The systemic risk of the climate crisis threatens the long-term value of New York City’s pension funds,” Lander said. “Our Net Zero plan is a core part of our fiduciary duty to protect these assets. I am pleased to report that 46 of our 49 public markets managers are aligned with our expectations for decarbonization; unfortunately, three are not.”

The NYC comptroller said he has “significant concerns regarding BlackRock’s restrictive approach” to engaging with public companies it owns more than 5% of the equities. The asset manager said it will not proactively reach out to on proxy voting issues to align with a “conservative interpretation” of the Securities and Exchange Commission’s updated engagement guidelines.

BlackRock also recently began allowing clients it doesn’t vote proxies for to opt into its Climate and Decarbonization Stewardship strategy, which Lander recommended the trustees’ formally vote to approve for the system’s non-U.S. equity index funds that BlackRock manages. For the public equity index funds BlackRock manages for the system, Lander recommended issuing a search notice to find “appropriate managers for BlackRock’s U.S. public equity index mandates to address the Systems’ climate expectations consistent with fiduciary duties.”

“While BlackRock has a global [Climate and Decarbonization Stewardship] focus list of 900 companies, it says it will not proactively reach out to U.S. companies nor set agendas for engagement; consequently, it cannot meet the Systems’ expectations set forth in the Plans,” Lander told the system’s trustees. “BlackRock also says it cannot seek to influence these companies’ actions, which means it cannot meet the Systems’ expectations set forth in the Plans with respect to their U.S. portfolios.”

In a follow-up statement issued Wednesday, BlackRock said it had responded to a direct request from the New York City Bureau of Asset Management — which oversees the investments for the city’s five public pension funds — and met with its investment team earlier in the month to provide an update on its Climate and Decarbonization Stewardship program. The asset manager said it informed NYC BAM that a version of the program was now available to all five pension plans.

“Today, you recommended that three pension plans take certain actions after your departure, including terminating BlackRock’s index equity mandate. In doing so, you accused BlackRock of abdicating its financial duty and putting New York City’s pensions at risk,” BlackRock said in the Nov. 26 statement addressing Lander. “These statements are another instance of the politicization of public pension funds, which undermines the retirement security of hardworking New Yorkers.”

Lander also suggested terminating the mandates for Fidelity and PanAgora, which both actively manage U.S. small cap equity mandates for the system. In their place, Lander said the system should seek recommendations for how to re-allocate those assets, according to the letter to trustees.

Lander recommended moving on from Fidelity, as the asset manager has “taken a restrictive approach to engaging companies outside of the U.S.,” and is voluntarily applying the SEC’s engagement guidance to both U.S. and non-U.S. companies. The comptroller said other asset managers of non-U.S. strategies have not taken the same approach, which “precludes Fidelity from meeting the Systems’ expectations and prudently addressing climate risk and opportunity in their engagement of companies.”

Lander said PanAgora does not engage companies beyond the topic of emissions disclosures. As such, “they do not engage companies to take any decarbonization actions to improve carbon efficiency such as setting emissions reduction targets or adopting decarbonization plans even when such actions may be beneficial to a company.”