Largest U.S. Pension Funds Face New Climate Deadline
Last year, with the help of many of you, Fossil Free California succeeded in getting California to pass the first-ever law requiring public pension funds to report on their climate-related financial risk. Senate Bill 964 (Allen, D-Santa Monica) specifically requires the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) to complete and report on a comprehensive analysis of climate-related financial risk in their portfolios. With the first reporting deadline now looming, we have joined with four other environmental NGO’s to provide these two funds a set of guidelines for complying with the new law.
Letters from Fossil Free California, the Center for International Environmental Law (CIEL), the Union of Concerned Scientists, the Institute for Energy Economics and Financial Analysis (IEEFA), and Environment California arrived on Monday at CalSTRS and CalPERS, providing best-practice recommendations for how the two funds should report on their climate-related financial risk. The first reporting deadline is January 1, 2020, and the funds have work to do in order to comply with SB 964 and avoid legal liability.
Nicole Pinko of the Union of Concerned Scientists reminded the funds that climate change “represents a greater risk than the financial industry has seen before. The cost of climate disasters is rising exponentially as we see more frequent and severe weather events, and potential changes in public perception hold a reputational risk for companies involved in the energy sector. The rapid bankruptcy of PG&E after two years of wildfires is a sobering example of this climate-related risk in California.” Given this heightened risk, UCS urged PERS and STRS to focus particularly on the energy sector and “the urgent need to reduce emissions to net-zero by mid-century.”
Tom Sanzillo, Director of Finance at IEEFA, wrote that “California’s pension funds are being asked to take into account climate risk as a key component of their investment strategy. The new legal requirement comes during a time of heightened risks and lower returns in the fossil fuel sector as cheap gas and renewables play havoc with stock performance. While the diligence required to comply with the California statute may seem burdensome to some, it is a reality check on the financial risks and fragility of the industry as a whole.”
The letters are addressed to the PERS and STRS board members because, as Steven Feit of CIEL states, “[f]or those managing pension funds, monitoring how climate change impacts these investments is more than just good business sense; it’s a legal duty. Public pension fund fiduciaries should be actively monitoring their portfolios to ensure pensioners’ investments are protected as climate change worsens and the world transforms to a clean-energy economy. Now, SB 964 has made this obligation even more explicit for California’s pension funds.”
FFCA and Environment California have given specific recommendations on reporting, in line with the Task Force on Climate-related Disclosures (TFCD). The TFCD was established in Paris in 2015 to develop consistent reporting parameters for businesses and financial institution, and it is the leading guide for companies wanting to disclose climate-related financial information.
PERS and STRS are the two largest public pension funds in the nation, and two of the largest public pension funds globally. The investment decisions that these funds make influence investors around the world. Together, the funds manage nearly $600 billion in equities, real estate, and infrastructure investments for almost 3 million California public employees and teachers. To defend the planet, to protect the pensions of members and beneficiaries of the two funds, and to ensure the fossil fuel industry is held accountable, PERS and STRS must adopt a meaningful reporting protocol.