As long-term investors responsible for safeguarding the pensions of both current and future retirees, the five New York City Retirement Systems (“Systems”) look to mitigate risks and maximize opportunities to deliver strong risk-adjusted returns. The NYC pension funds have holdings across most companies in public markets and a diversified set of investments in private markets. Through engagement with asset managers, shareholder advocacy with portfolio companies, proxy voting, and economically targeted investments, the Bureau of Asset Management works to reduce risks that affect sustainable, long-term economic growth — the biggest determinant of meeting investment objectives.
Responsible fiduciary investing takes into account the environmental, social, and governance (or “ESG”) risks facing companies and integrates risk mitigation into how we build our portfolio and engage with the companies we invest in – all in order to deliver stronger long-term, risk-adjusted returns. Whether that is looking at how a company treats its workers, at how climate change may impact their business model, or at whether they have good guardrails on governance issues like board independence or insider trading, responsible investing means assessing risks that may impact financial returns.
The Office of ESG within the Bureau of Asset Management is tasked with leading the integration of ESG considerations into manager selection, investment due diligence, corporate engagement, and economically targeted investments. We deploy a range of strategies to mitigate systemic and individual risks facing the Systems’ portfolio:
- Corporate Governance: Strategic engagement with companies to confront specific risks like high emissions in their supply chain, poor human capital management, or governance risks like insider trading vulnerabilities results in changes in individual corporate behavior in the real world. We believe corporate action that minimizes ESG risks and/or maximizes ESG opportunities facing their operations results in superior long-term sustainable risk-adjusted investment returns. Through proxy voting, shareholder action, and direct engagement with corporations the Bureau of Asset Management works to confront specific risks or opportunities in our publicly-traded equity portfolio.
- Climate Transition: Climate change poses risks and opportunities to the investment portfolio of the New York City Retirement Systems. We seek to mitigate the risks, invest in long-term opportunities, and reduce the contributions our investments make to climate change. The New York City Employees Retirement System, Teachers Retirement System, and Board of Education Retirement System have set a goal of achieving net zero greenhouse gas emissions by 2040, including by divesting from fossil fuel reserve owners, investing in climate solutions like renewable energy and resiliency projects, and engaging with companies and investment managers to bring about more ambitious climate action across the economy. The Bureau of Public Finance also deploys municipal finance to invest in green infrastructure.
- Diversity, Equity and Inclusion in Asset Management: Diversity and inclusiveness are correlated with stronger performance, better decision-making and greater resilience. Our proactive practices to invest with diverse and emerging managers through our Emerging Manager Program and our M/WDVBE Broker/Dealer program ensure that we can identify the highest-performing managers, diversify our opportunities, and build long-term partnerships for our success. As shareholders, we lead efforts to encourage companies to disclose and improve diversity in their boardrooms, C-Suites and workforce.
- Workers’ Rights: As investors representing the interests of union workers and retirees, we expect the companies we invest in to respect the rights of workers. Our corporate engagement includes efforts to hold companies accountable to respecting freedom of association and holding boards accountable for oversight of management’s response to collective bargaining. We engage directly with portfolio companies around labor disputes and our responsible contractor policy sets clear standards for the pay and treatment of workers.
- Economically-Targeted Investments: In an effort to generate risk-adjusted market rates-of-returns and to promote economic development within New York City, NYCRS allocates 2% of pension assets towards Economically Targeted Investments (ETI). The ETI program is designed to address market inefficiencies by providing capital or liquidity to underserved communities and populations citywide and the surrounding counties in New York State. Our ETI portfolio has focused on the creation and preservation of affordable housing in the New York City metropolitan area.