Pensions not protecting people from climate-related financial risk

February 2nd, 2024

Pensions funds are failing to protect their beneficiaries from climate-related financial risk, according to a new report by Sierra Club, Stand.earth, and Stop the Money Pipeline.

The report, ‘The Hidden Risk in State Pensions: Analyzing State Pensions’ Responses to the Climate Crisis in Proxy Voting’, analyses proxy voting records, proxy guidelines, and voting transparency of public pensions of 24 public funds collectively representing more than $2 trillion in assets under management.

The report found that public pensions are failing to take the necessary steps to tackle the climate crisis and reduce climate-related financial risk, which it said places the savings of millions of beneficiaries at risk.

It assessed the funds’ proxy voting guidelines based on their strength on addressing climate- and environment-related financial risks. In the evaluation, none of the funds received an A grade rating for their proxy voting guidelines.

The report also evaluated pension funds on their voting records on a set of climate-related votes at financial institutions in 2023, and how easily accessible data on voting records and proxy voting guidelines are.

On proxy voting records, four state pension systems based in Massachusetts, Oregon, and California, and all of New York City’s five pension systems received A grades and on data transparency 13 pension systems received A+ grades.

All the funds analysed were based in states that are a member of For the Long Term, a network that advocates for more sustainable, just, and inclusive firms and markets, including New York, California and Connecticut.

The report recommended the funds strengthen their proxy voting guidelines and use those to direct their voting practices in 2024 and beyond.

The report said: “Pensions are both universal owners and long-term owners. Given this, pension funds are some of the institutions most exposed to systemic financial risks, such as those posed by the climate crisis and biodiversity loss and must therefore adapt their investment and stewardship strategies to meet their fiduciary obligations in light of these emerging risks.”