By Muskan Arora
Following the approval of the board, the $66bn
Maryland State Retirement and Pension System aims to combat technology risk,
business model risk and portfolio fit through the new climate-focused panel.
Appointed by the Board, the Climate
Advisory Panel will consist of at least three outside experts in the analysis
of climate change risk who are experienced in climate science or climate
economics, as confirmed by spokesperson Katherine Morris.
“I am inspired by the groups that are
trying to understand and act on how investing activity is impacted by climate
change and how to invest today to benefit from the most profitable segments of
the energy transition and climate change mitigation businesses that will rise
up to meet these challenges,” told the CIO Andrew Palmer to Markets Group.
“I am under no illusions that we have
figured this out which is why we are creating the panel, to add to our
insight. I am convinced that ignoring the risks and opportunities of this
multi-decade process is not appropriate for our plan,” added Palmer.
Within climate related investments, the
system finds most opportunities in the energy sector, as “we see the
infrastructure sector as a growth segment with persistent excess demand for
capital for which we expect to earn a premium”.
Evaluating climate-focused opportunities
since 2019, the CIO highlighted seeing opportunities in renewable power
alongside upgrading the existing infrastructure to be more carbon and energy
efficient.
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Maryland’s portfolio is heavy on private
markets investments, with 21% in private equity, 6% in private credit, 9% in
real estate and 5% in infrastructure, as of September 30, 2024. On the other
hand, 31.7% is allocated to public equities, 17% in rate-sensitive assets and
the remaining is split between absolute return and public debt.
The panel is expected to bring together
diverse backgrounds that “that may include access to current climate study data
and experience in the fields of climate studies or research, investment
management or research that integrates climate risks and opportunities into the
investment decision-making process, or climate change policy”.
This decision comes after the 2022 session,
where the General Assembly enacted into law legislation authorizing the Board
to establish an advisory panel of experts in the analysis of climate change
risk to provide the most current science and data available.
The advisory panel will collaborate with
the Board of Trustees, SRPS Investment Division, and consultants to develop
recommendations and initiatives to achieve a long-term sustainable portfolio.
The panel, which will meet twice a year,
will advise the board on “setting objectives, strategies and policies for
establishing a path to long-term sustainable portfolio consistent with fiduciary
duties”.
Maryland aims to reduce greenhouse gas
(GHG) emissions by 60% by 2031 and create a net zero path by 2045.
These GHG reduction goals are the “most
ambitious” for any US State, as stated by Serena Mcllwain, Maryland’s Secretary
of the Environment, in her foreword.
While pension plans in Maryland and California
are focused on sustainability initiatives, other states are moving away from
such allocations. Last year, the Indiana Public Retirement System terminated BlackRock
due to its ESG commitments. A new bill passed in Ohio bans the state from
considering ESG factors into decision making.
In FY 2024, the System returned 6.93% for
the year ending June 30, 2024, topping its actuarial rate of return by 13 basis
points and beating its policy benchmark by 59 basis points.
