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Oregon’s roughly $94 billion public employee pension system could someday become carbon neutral, according to a new plan from the state Treasury. But getting there depends largely on whether companies and private investment funds stick to their commitments to do the same.
State Treasurer Tobias Reed 97 page plan On Tuesday, it aims to reduce overall emissions from investments in the Public Employees’ Retirement System (PERS) by 60% by 2035 and bring portfolio emissions to “net-zero” by 2050. This does not mean divesting fossil fuel funds completely. Mr. Reed advised the Oregon Investment Council, which selects investments in PERS, to invest in industries with large fuel reserves but heavy carbon emissions, and industries that reduce and absorb emissions, or by 2035. He said there is a need to strike a balance with industries that are committed to absorbing emissions.
The state partnered with global consulting firm McKinsey & Company to develop the $1.9 million plan. The plan includes a treble of investment in “climate positive” activities for companies aiming to set up their own plans to achieve net zero emissions and a net zero advisory board to be appointed this spring. The committee will meet with Treasury officials at least twice a year to provide feedback on progress.
The Investment Council will consider the proposal over several sessions and decide whether to provide the necessary resources to implement it before presenting it to lawmakers.
The project has a four-year implementation period starting in 2024 and states that by 2028 there will be a transition from fossil fuel investments to more “climate-positive” investments.
Environmentalists have been calling for PERS to release its fossil fuel holdings for years, but Mr Reid has been reluctant to take major steps to shift the plan towards climate-friendly investments due to concerns about profits. It was spot on. About 75% of all benefits paid to PERS retirees are funded by Treasury investment income, the agency said. Currently, more than 160,000 PERS retirees receive an average of $34,000 annually from the fund.
But Mr Reid told the council that the bigger risk now is that investment in coal, oil and gas operations and sectors affected by climate change will continue to increase and the world will rapidly move towards renewable energy. As time goes by, it becomes harder to predict and the value is likely to decline. energy economy.
Some council members expressed concern that the plan relied heavily on achieving emissions reduction plans that companies, governments and private equity funds have touted but have rarely achieved.
“Much of this plan requires that the companies we invest in have their own net-zero trajectories, plan for and achieve them,” said Council Chair Carla Samples. stated at the meeting. “We also know that most countries and companies are not actually on track to achieve their plans.”
Mr Reid acknowledged the plan was dependent on industry meeting emissions targets, but said government agencies needed to start making big moves towards carbon neutrality now.
“(Plans) need to be adjusted as policies change, as technology emerges, as the world changes,” he said. “Future Treasurers and Congresses have an obligation to adapt to that reality as well. But we want to start down this path and work through it in a way that doesn’t let others further define the options available to us.” I believe it is much better.”
Termination of some private equity funds
The plan would halt new investments in private equity funds that seek to invest primarily in fossil fuels and increase “climate positive” investments in private equity and real assets from $2 billion to $6 billion. Increase by 3 times. Private equity firms, which are privately held companies, and real assets, such as investments in infrastructure, commodities and natural resources, make up about half of the PERS portfolio. According to the report, the largest portion of emissions-related investments in the National Pension portfolio (almost 10%) comes from investments in fracked gas and oil, which are considered real assets.
The other half of the portfolio is primarily invested in publicly traded companies. The plan will ensure that at least 40% of these investments are held in companies that reduce greenhouse gas emissions or have plans to move to net-zero emissions by 2035.
The plan focuses on reducing investments associated with emissions from a company’s operations, rather than indirect emissions from the end-use of products, goods, and supply chains.
That drew criticism from Jennifer Schramm, the leader of the nonprofit group Divest Oregon, which has advocated for years for the Treasury Department to divest from fossil fuel investments.
“This is like measuring the cancer risk from growing tobacco or operating a tobacco factory, but completely ignoring the cancer risk posed by actually smoking the cigarettes produced by that investment.” she said in testimony to the council on Tuesday.
McKinsey employees who contributed to the proposal said calculating indirect emissions and incorporating them into net-zero decisions will require more resources in the future.
In addition to shifting direct investments in PERS away from heavy-emitting industries, the plan would require the Treasury to only work with investment managers committed to reducing the fund’s exposure to climate risks. . Strengthen Treasury’s data, reporting staff and capacity to more thoroughly understand and track greenhouse gas emissions associated with the Fund’s investments. It will also establish the establishment of a Net Zero Beneficiary Advisory Committee. The committee is expected to begin meeting with Treasury officials as early as this summer to provide feedback on the fund’s progress towards net-zero investing.
“I believe it is my responsibility to move this effort forward, use it productively next year, and provide a solid blueprint for my successor,” Reed said in his plan. His eight-year term as finance minister officially ends in January 2025, and he is currently running as the Democratic Party’s candidate for secretary of state.
many first steps
Environmental activists have long urged Mr. Reid to change public pension funds, not just to combat climate change, but also as a matter of fiduciary responsibility given the risks associated with fossil fuel companies in a rapidly changing energy economy. They have called for the removal of fossil fuel investment portfolios.
“As the impact of climate change on investment portfolios is increasingly understood, we need a transparent and transparent approach from the Treasury Department to ensure the success of this decarbonization effort,” said Andrew Bogland, director of communications for Divest Oregon. “We need a commitment to reporting, a sense of urgency, and responsive policy-making.”
“This is just the beginning,” he said.
From 2019 to 2021, the Treasury doubled its investments in renewable energy from nearly $370 million to $717 million, still less than 1% of the fund’s total investments. Although fossil fuel investments were reduced by about $100 million over the same period, fossil fuels account for a much larger share of the overall PERS portfolio. More than $3.5 billion has been invested in fossil fuels, representing about 3.7% of the total fund.
Divest Oregon is suggestion Lawmakers are expected to consider a proposal this session to target coal to shift state investment away from fossil fuels. The Clean Oregon Assets Legislation (COAL Act) is sponsored by Rep. Khanh Pham, D-Portland. Sen. Jeff Golden, D-Ashland; Congressman Mark Gamba (D-Milwaukee). It would direct the Treasury Department to sell state retirement plans for their holdings in companies that mine and burn coal. Divest Oregon has identified approximately $1 billion of the fund’s investments in the coal industry.
Ultimately, Reed said, it will be up to the future treasurer to make those divestments and effectively reduce the state’s pension fund to zero.
“When we get to 2050, 26 years from now, whatever our best intentions may be, even if we all agree completely and are 100% sure about this plan, “It’s not going to happen. But this plan gives us an offensive opportunity to control what we can control,” he said.
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