Chicago city officials will soon begin to consider hundreds of environmental, social and governance risk factors in shaping the city's $8 billion portfolio as part of their broader effort to make the city a more socially responsible investor.
ESG investing is consistent with the city's overall goal to achieve the best returns with the least amount of risk while also investing with impact, said City Treasurer Kurt Summers. He said Chicago, the third-largest city in the U.S., will begin including ESG metrics during the third quarter.
Using ESG offers a "better and more thorough way to invest," Summers said on a May 22 earnings call. "And it just so happens that we believe it's the right thing to do."
Chicago's decision comes as several city and state pension funds, such as those in California and New York, have taken steps to reduce their financial holdings in fossil fuel companies. Some pension funds and major asset managers have also pressed companies to disclose in their portfolios their plans for tackling climate change risks, ensuring gender diversity and tying senior executives' compensation to ESG metrics.
While Chicago aims to be the first major city to adopt ESG metrics on such things as climate change, working conditions, customer privacy and data security issues, Chicago will be following in the footsteps of Illinois State Treasurer Michael Frerichs. His office already includes ESG in its investment, fund manager selections and corporate engagement practices.
Summers said that after spending the last 18 months thinking about how deep of a dive to take into ESG, his office found more than 800 different subfactors they could consider, "many of which had a direct impact on the credit quality and the inherent risk that we were taking as investors and as fiduciaries on behalf of taxpayers."
"We've seen those risks play out in real time in the headlines every day on issues of data security, privacy, financial transactions and institutions, and even the quality of products and working conditions," Summers said.
