CFO Sink: Florida Treasury First to Review Climate Risk
CONTACT: Tara Klimek
Florida establishing new benchmark for climate risk and opportunity
TALLAHASSEE -- Chief Financial Officer Alex Sink announced today that Florida is the first Treasury in the nation to formally analyze investments for the financial impacts of climate change. In an effort to better protect the Treasury portfolio from emerging risks, CFO Sink has launched a semi-annual review process to assess how public fund managers incorporate climate risk in portfolio holdings as part of prudent investment management.
CFO Sink has partnered with RiskMetrics Group to analyze the corporate bond holdings of 20 external fund managers and one internal fund manager. Corporate bonds represent approximately $3.4 billion of Florida’s $24 billion in Treasury funds. Fund managers that have higher composite scores on their corporate investments have selected companies with governance practices in place that make them better positioned to meet the challenges and opportunities related to climate change.
“Climate risks are converging not only on our state, but also on the investments we manage on behalf of our citizens,” said CFO Sink, who oversees the Treasury and Department of Financial Services. “As Florida’s Chief Financial Officer, I’m constantly looking for new tools to identify emerging financial risks to better protect taxpayer dollars in the Florida Treasury.”
The assessment process is guided by “Climate Change Governance Framework,” an emerging standard endorsed by CFO Sink and the Investor Network on Climate Risk, a national network of investors focused on the business impacts of climate change. This framework connects corporate governance and climate change through examination of board oversight activities, management execution, public disclosure, emissions accounting and strategic planning, with an emphasis on targeted greenhouse gas emission reductions and pursuit of new climate-oriented business opportunities.
By scoring Florida’s fund managers on portfolio climate risk, CFO Sink is establishing a benchmark that will be tracked over time. While financial returns will remain the primary consideration in evaluating fund manager performance, climate risk is being added as an integral component of prudent portfolio management. During the semi-annual review process, Treasury fund managers will be asked about their methods and capabilities to analyze climate risks, with an expectation that they will be able to demonstrate improvement in scores over time.
“Sea level rise and increased hurricane activity pose serious physical risks to a coastal state like Florida,” said Doug Cogan, Head of Climate Risk Management at RiskMetrics Group. “Savvy financial leaders also recognize the monetary risks and opportunities presented by climate change making this the time to align investment strategies with a carbon-constrained future.”
CFO Sink endorsed the fund manager engagement process at the Investor Summit on Climate Risk at the United Nations in February 2008, attended by more than 450 financial advisers and corporate leaders from around the world. CFO Sink also joined with state treasurers and pension fund leaders with more than $1.5 trillion in assets under management from California, New York, North Carolina, Maryland, Pennsylvania, Illinois and a half-dozen other states to sign on to a “Climate Change Action Plan” to boost fund investments in energy efficiency and clean energy technologies as well as require tougher scrutiny of carbon-intensive investments that may pose long-term financial risks.
As a statewide elected officer of the Florida Cabinet, Chief Financial Officer Alex Sink oversees the Department of Financial Services, a multi-division state agency responsible for management of state funds and unclaimed property, assisting consumers who request information and help related to financial services, and investigating financial fraud. CFO Sink also serves as the State Fire Marshal.