NY Insurance Fund Slashes Carbon Exposure with Strategic ETF Investment

The New York State Insurance Fund has taken a significant step towards sustainable investing by reallocating assets from coal to a responsible-investment exchange-traded fund (ETF). This strategic move has resulted in a substantial reduction of carbon exposure in the fund's equity portfolio.

Rajith Sebastian, head of ESG and Sustainable Investing for the $20 billion state fund, revealed at a Reuters NEXT Newsmaker event that this reallocation "immediately reduced our carbon exposure in the equity portfolio by something like 40%." This swift action demonstrates the fund's commitment to addressing climate and social impacts in its investment strategy.

Established in 1914, the New York State Insurance Fund is the largest workers' compensation insurance carrier in New York State, covering approximately 46% of the market. With over 150,000 policyholders and assets exceeding $18 billion, the fund plays a crucial role in providing workers' compensation, disability, and other coverage to New York businesses.

In 2022, the fund released a climate action plan, aligning itself with larger public-sector pension funds in New York. This move came as part of a broader initiative to incorporate Environmental, Social, and Governance (ESG) factors into its investment decisions.

To achieve quick wins in reducing emissions, the fund implemented stringent screens against companies or asset managers deriving more than 1% of their revenue from coal mining. This decision not only significantly reduced the fund's carbon exposure but also provided an opportunity to seed a new ETF, the Calvert U.S. Large-Cap Core Responsible Index ETF.

Sebastian acknowledged that the move initially faced internal resistance due to concerns about creating too much exposure to the fund. However, the strategy has proven effective, with the state fund's holdings now accounting for about half of the ETF's assets of approximately $354 million, down from around 95% initially.

The fund's approach to sustainable investing extends beyond this single action. As a self-supporting entity that receives no state funding, it has been implementing various technological upgrades and offering free safety and risk management services to policyholders. These initiatives, combined with its statutory obligation to provide coverage to any employer seeking it, underscore the fund's commitment to both financial stability and social responsibility.

"We didn't even publicize because we thought, let's do this, it's impactful."

This quiet yet impactful move by the New York State Insurance Fund serves as a model for other institutional investors looking to reduce their carbon footprint while maintaining a strong financial position. As the fund continues to balance its role as a guaranteed source of workers' compensation insurance with its commitment to sustainable investing, it demonstrates that quick, decisive actions can lead to significant environmental impacts in the financial sector.