Riding a growing wave of interest in green investments, New Jersey is putting up to $200 million in state pension money into a climate-themed private equity fund, upping the ante on previous climate-themed investment.
The investment in the Rise Climate fund managed by TPG Capital Partners will focus on “opportunities in climate change and carbon reduction” in five key areas: clean energy, enabling solutions, decarbonized transport, greening industrials, and agriculture and natural solutions, according to a memo from the state’s Division of Investment.
The State Investment Council reviewed the division’s proposal on the fund at its July meeting. “There were no objections raised by the [council], and the Division of Investment is proceeding with these investments,” said Jennifer Sciortino, spokesperson for the New Jersey Treasury Department.
Part of the department, the Division of Investment is the nation’s 20th largest pension fund manager, handling seven state pension funds, including those for police and firefighters, the judiciary and state employees. The total value of the funds is $92.67 billion, according to the division’s website.
Rise Climate investment will be the pension funds’ second climate-themed investment. Last year, the state invested up to $100 million in the Stonepeak Global Renewables Fund, which is dedicated to “executing renewable energy investments.” In addition to New Jersey’s investment, the fund has attracted $2.75 billion from more than 40 global investors. According to a recent press release, the fund’s portfolio includes $800 million in utility-scale and commercial solar and wind.
The division’s proposal for investing in TPG Capital was based, in part, on “favorable macro trends in climate investing.”
“Corporate net-zero pledges, government commitments and support, climate consumerism, investor engagement, and major advances in climate-related technology are driving new opportunities for climate-themed private equity investment,” the July 9 memorandum said. “Currently there are limited pools of private capital focused on climate-related investing.”
The investment would allow the state to achieve “first mover advantage” through a “sector-based climate strategy” of investment, the memorandum said.
Fossil Fuel Divestment
DivestNJ Coalition, an independent advocacy group created to end fossil fuel investment by the state pension funds, welcomed the TPG Rise Climate proposal and the state’s “attention to carbon free investments.” But Tina Weishaus, the organization’s co-chair, added that green investments are just “one side of the equation.”
“If you do not also reduce or eliminate by divesting your fossil fuel investments,” she said, “you are not addressing the climate risks that fossil fuel investments create for your entire portfolio, the global economy and, not to overstate it, humanity.”
New Jersey’s climate-themed investments reflect the growing interest among much larger pension funds in backing such investments and leveraging their funds to pressure companies to take steps toward reaching net zero emissions.
New York State Comptroller Thomas P. DiNapoli announced in December that the $226 billion New York State Common Retirement Fund would “transition its portfolio to net zero greenhouse gas emissions by 2040.” The initiative will involve a four-year review of the fund’s investments in energy sector companies that will assess “transition readiness and climate-related investment risk,” according to a release announcing the move.
The retirement fund will by 2025 determine “which companies are suitable to remain in the Fund’s portfolio,” the release said. “Divestment is a last resort, but it is an investment tool we can apply to companies that consistently put our investment’s long-term value at risk,” DiNapoli said.
That will include the fund dropping many of its fossil fuel stocks in the next five years, according to the New York Times. The fund is also an investor in the Stonepeak Global Renewables Fund.
DiNapoli said that “the fund will continue to increase its engagement efforts with companies across industries to encourage them to reach net zero carbon emissions more quickly and will continue to vote against board directors at portfolio companies that fail to take steps to mitigate climate risks.”
The California State Teachers’ Retirement System, with a value of $311 billion, initiated a “low-carbon transition work plan” in 2019, and in April invested $1 billion in a BlackRock Transition Readiness Exchange-Traded Fund (ETF). The fund invests in companies “that BlackRock believes are better positioned to benefit from the transition to a low-carbon economy,” according to a press release. The investments focus on five sectors: fossil fuels, clean technology, energy management, waste management, and water management.
Confronting Global Change
Like state pension funds, large asset managers such as BlackRock have come under increasing pressure to transition their portfolios in the face of catastrophic climate change. In his annual message to clients in January, BlackRock CEO Larry Fink explained his company’s investment philosophy by saying he believed that the pandemic triggered “such a stark reminder of our fragility” that it has driven people to “confront the global threat of climate change more forcefully.”
He cited figures showing that from January to November 2020 “investors in mutual funds and ETFs invested $288 billion globally in sustainable assets, a 96% increase over the whole of 2019.”
“I believe that this is the beginning of a long but rapidly accelerating transition — one that will unfold over many years and reshape asset prices of every type,” he wrote. “We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.”
The shift among pension funds toward embracing climate change mitigation is a strategy also backed by corporate America. Among the companies making pledges to reach net zero at a future date, PSEG, New Jersey’s largest electric utility, announced in June that it is accelerating its greenhouse gas reduction efforts to reach net-zero emissions by 2030, 20 years earlier than its previous target. (See: PSEG Speeds up Plan to Cut Emissions.)