Teacher’s Retirement System of the City of New York
Portfolio level
Portfolio level – Portfolio decarbonisation reference target
Baseline date: December 31, 2019
Baseline performance: 81.6 tC02e/$mn invested (Scopes 1 and 2)
Target year: 2025, 2030
Target(s):
- -32% tCO2e/$mn invested by 2025,
- -59% tCO2e/$mn invested by 2030
In addition, TRS expects all our public markets assets managers to have a net zero goal or science-based targets and implementation plan covering, at a minimum, assets managed for the System, by June 30, 2025, and all our private markets managers to do so by Jun 30, 2026.
GHG scopes included: The interim targets cover Scopes 1 and 2 of public equity and corporate bonds including investment grade credit and high yield bonds. TRS will annually measure, assess and report progress in Scope 3 emissions, beginning with 2022 data, with a focus on high emitting sectors and companies where Scope 3 is material.
TRS will measure, report and assess Scope 3 emissions separately for high-emitting sectors including, at a minimum, energy, utilities, materials, industrials and finance. TRS will set interim Scope 3 emissions reduction targets by 2025 as data availability and quality improve.
TRS expects all managers to cover Scopes 1 and 2 emissions and material Scope 3 emissions of underlying investments in their targets and plans.
Asset classes in scope: Listed equity and corporate bonds (including investment grade and high yield). TRS commits to develop and adopt interim GHG emissions reduction targets in private markets, including Private Equity, Real Estate, Infrastructure and Alternative Credit, and will evaluate such targets as private markets emissions data improves.
Methodology/net zero scenarios: The interim targets for 2025 and 2030 are informed by a combination of NZIF-recommended ranges; science-based net zero emission pathways including by IPCC 1.5 ⁰ Celsius scenarios for no and low overshoot; and actual emissions trajectories of the System’s investments. They were also informed by the NZAOA protocol which in its 3rd edition, finds that absolute emissions reductions for 2020 to 2025 should range between – 22% to -32% and for 2020 to 2030 between -40% to -60% or more.
Furthermore, IPCC scenarios for 1.5⁰ Celsius pathways demonstrate a rapid acceleration of emissions reductions earlier followed by a gradually reduced rate of emissions reduction. This pacing reflects the decarbonization needed earlier in order to avoid temporary overshoots of 1.5⁰.
In addition, the System’s targets for 100% of its managers across asset classes to have adopted net zero goals or science-based targets with implementation plans by 2025 for public markets managers and by 2026 for private markets managers and 90% of Scopes 1, 2 and 3 financed emissions of public equity and corporate bonds to be covered by science-based targets further support the System’s ability achieve its fair share of global emissions reduction by 2030.
Emissions metrics: TRS will report annual carbon footprint analyses of our public equity and corporate bond portfolios measuring Scopes 1, 2 and 3 financed emissions (emissions/$ million invested) with Enterprise Value Including Cash (“EVIC”). TRS will also measure, evaluate and report changes in absolute emissions and weighted average carbon intensity.
Portfolio level – Investment in climate solutions target
Quantitative target
Baseline: As of June 30, 2022
Baseline performance: While TRS’ climate solutions goal does not depend on a baseline year, TRS had a total of $2.19 billion of invested and unfunded commitments in climate change solutions.
Target years: 2025, 2035
Target: Consistent with fiduciary duties and investment objectives, TRS has a goal of investing
- $19 billion in climate solutions by 2035
- With an interim target of $4.2 billion by 2025
TRS shall develop and periodically assess and update climate change solutions investment goals in consultation with our investment advisors, taking into account the System’s asset allocation, pipeline and opportunity sets for each asset class, including public and private markets.
Methodology: Climate change solutions are investments in economic activities that contribute substantially to mitigating, remediation, adaptation and/or resilience in relation to climate change impacts. Such activities include but are not limited to renewable energy, energy efficiency, sustainable water, and pollution prevention.
TRS directs the Bureau of Asset Management (BAM) to periodically review the definitions for climate change solutions investments by asset class to ensure that they accurately reflect investments that are contributing to achieving the goals of the Paris Climate Agreement to keep global warming below 1.5° C. Appendix C of TRS’ Net Zero Implementation Plan provides complete definitions of climate solutions investments. The precise definitions vary based on asset class and external data provider.
After approval of the Implementation Plan, the accounting of climate solutions in public equity and public fixed income has been updated from counting 100% of investments in companies deriving 50% or more revenue from climate solutions to counting the investments in all companies deriving any revenue from climate solutions in proportion to the percentage of each company’s revenue from climate solutions.
Development of the climate solutions targets were informed by current amounts and historical trajectories of climate solutions investments in TRS’ portfolio and long-term projections of overall portfolio growth.
Asset level
Asset level – Portfolio coverage target
Baseline: As of June 30, 2022, approximately 22% of TRS’ Scopes 1 and 2 financed emissions in public equity and corporate bonds were attributed to companies with SBTi-approved targets.
TRS has currently set targets for companies in its public equity and corporate bond portfolios to adopt science-based targets (SBTs) (see details below). Adoption of SBTs is a partial indicator of “aligning” status.
TRS continues to explore data, tools, and methodologies for further assessing the net zero alignment of portfolio companies based on whether their plans and capital expenditures are aligned to achieving 1.5⁰ C.
Target year: 2025, 2030
Target:
- By 2025 companies representing 70% of Scopes 1 and 2 financed emissions in our public equity and corporate bond portfolios, and
- By 2030 companies representing 90% of Scopes 1, 2 and 3 financed emissions in those portfolios will have adopted science-based targets, to be approved by SBTi or otherwise independently verified with globally established science-based standards
Asset classes in scope: Public equity and corporate bonds (including investment grade and high yield)
Data sources: Listed equity & corporate bonds: SBTi and MSCI
TRS will continue to explore data, tools and methodologies for further assessing the net zero alignment of portfolio companies including Climate Action 100+ and the Transition Pathway Initiative.
Asset level – Engagement threshold target
Target: As of June 30, 2023, the companies targeted for engagement comprise approximately 48.1% of the Scope 1 and 2 financed emissions of the public equity and corporate bonds portfolio.
Approach: To focus resources efficiently toward engagement, TRS directs BAM to prioritize identifying and engaging high-emitting corporate portfolio companies in the Russell 1000 and the ACWI World- ex USA IMI, and the largest portfolio companies by market capitalization in the MSCI Emerging Markets indices in the highest emitting sectors.
These sectors shall include, at a minimum, energy, utilities, industrials and materials, as the highest emitting sectors of portfolio Scopes 1 and 2 emissions and the financial sector, as a high source of Scope 3 emissions. TRS will engage the highest emitting companies without SBTs in its public equity and corporate bonds portfolios to encourage adoption of SBTs and seek fulfilment of its targets.
Additional information
Methodology: The interim targets for 2025 and 2030 are informed by a combination of NZIF-recommended ranges, science-based net zero emission pathways, and actual emissions trajectories of the System’s investments. It was also informed by the NZAOA protocol which in its 3rd edition, finds that absolute emissions reductions for 2020 to 2025 should range between -22% to -32% and for 2020 to 2030 between -40% to -60% or more.
Furthermore, IPCC scenarios for 1.5⁰ Celsius pathways demonstrate a rapid acceleration of emissions reductions earlier followed by a gradually reduced rate of emissions reduction. This pacing reflects the decarbonization needed earlier in order to avoid temporary overshoots of 1.5⁰.
In addition, the System’s targets for 100% of its managers across asset classes to have adopted net zero goals or science-based targets with implementation plans by 2025 for public markets and 2026 for private markets and 90% of Scopes 1, 2 and 3 financed emissions of public equity and corporate bonds to be covered by science-based targets further support the System’s ability achieve its fair share of global emissions reduction by 2030.
Operational emissions: TRS shall set targets and a plan for reducing the System’s operational emissions to net zero by 2040. The targets and plan shall include investment office facilities in the Comptroller’s Office.
Fossil fuel investment: We collaborated with like-minded investors to craft a 2023 proxy season shareholder strategy at banks which have adopted net zero targets but continue to finance or underwrite new fossil fuel supply projects, in defiance of the admonition of the International Energy Agency of the need to cease such funding to achieve net zero by 2050 or sooner. This strategy includes filing shareholder resolutions at large North American banks calling for the adoption of absolute (as opposed to intensity) 2030 GHG emissions reductions targets. We are joining with other investors to urge the managed phaseout of high-emitting assets, which will require portfolio companies to move away more rapidly from processes involving the extraction and burning of fossil fuels than short-term competition from cleaner processes or renewables might prompt but that will lead to more sustainable long-term profitability.
Consistent with the Board’s January 2021 Fossil Fuel Reserve Owner Divestment resolution, we shall ask all private markets managers recommended for Board approval to commit across the recommended fund to exclude investments in exploration, extraction or production of oil, gas or thermal coal, or to otherwise provide TRS with the ability to opt out of such investments. If a manager does not agree to either condition, we will communicate the manager’s position to the Board, which shall determine whether to approve the investment, consistent with our fiduciary duties.
In 2022, TRS completed divestment of fossil fuel reserve owners meeting certain criteria in public equity and fixed income. In 2016, TRS completed divestment from publicly listed companies deriving at least 50% of revenue from thermal coal production, mining and/or processing. We will explore further potential prudent actions in the thermal coal value chain, including coal infrastructure and coal- powered electricity generation, as part of our engagement strategy, to manage the phaseout of high-risk fossil fuel assets and expedite the transition to a clean energy economy.
TRS will integrate assessments of how our investments support a just transition to a low carbon and net zero economy to mitigate systemic risk, adhere to human rights standards and support sustainable value creation consistent with our fiduciary duties. TRS will develop and apply prudent frameworks for such assessment in the diligence and monitoring of investment managers, shareholder engagement and other appropriate aspects of the investment process.
Investor climate action plan: TRS Net Zero Implementation Plan – Adopted April 4, 2023
TCFD report: TRS conducted TCFD reporting through its annual report as a signatory of the Principles for Responsible Investment (PRI).