Three Ways to Promote Long-Term Economic Security Through Climate Accountability
The fundamental priority of fiduciary duty in the pension system is clear: ensuring pensions are paid to members for a secure dignified retirement. As pension funds grow, so does their responsibility to safeguard the financial security of millions of workers. However, fulfilling this fiduciary duty extends beyond wealth accumulation—it involves managing investments wisely, with an eye toward long-term economic stability for members by integrating climate accountability into their policies and investment strategies. This includes actively addressing the risks posed by rapid climate change, as well as ensuring transparency about how investments are made, how risks are managed, and how the collective power of pension funds is leveraged to mitigate the impact of the climate crisis and support a just transition to a low-carbon economy.
With this responsibility in mind, here are three key ways pension funds can promote long-term economic security through climate accountability, ensuring climate resilience for members and their communities.
Integrating Climate Risk Assessments into Investment Strategies
Pension funds must conduct comprehensive, data-driven climate risk assessments across all asset classes within the portfolio to identify vulnerabilities and evaluate transition readiness. Accurate data can help with assessing current high-risk investments within the portfolio and direct assets to investments that catalyze good economic opportunities and healthy workforces. Proactively assessing and addressing risks—the potential impact of extreme weather, regulatory changes, market shifts toward clean energy, etc.—positions funds to build resilience against disruptions while safeguarding long-term returns.
In short, climate risk analysis tools can help funds understand the impact of climate change on existing and potential investments and help to avoid overexposure to laggards in particular sectors that are vulnerable to climate change.
Align Investment Policies with Environmental, Social, and Governance (ESG) Criteria
One of the most critical aspects of pension fund management is how investments are allocated. Members deserve to know if their pension fund is investing in industries or companies contributing to the climate crisis and how the fund is pressuring those companies to move to a low-carbon business model. Members also deserve to know if the fund is taking active steps to invest in opportunities in clean technologies that can offer financial returns and environmental benefits. Investing in companies aligned with ESG criteria can help mitigate climate risks while supporting industries that contribute to climate solutions, like renewable energy, sustainable agriculture, and energy-efficient technologies especially as the clean technologies sector is seeing significant growth.
Leveraging Shareholder Influence for Climate Action
Pension funds are some of the largest institutional investors in the world, managing nearly $6 trillion in assets. This financial power can be part of the solution to the climate crisis. With stronger seats at the table of pension funds, stakeholders (mainly frontline and essential workers) can repel corporate decisions driven by shortsighted self-interest at the expense of all others.
Through shareholder influence and proxy voting, pension funds can play more of a leadership role in moving companies to use more renewable energy, create plans to reduce emissions, increase equitable business practices, and protect worker health.
Ultimately, pension funds can and should use their voting power to support climate-friendly policies and legislation. Pension funds will have opportunities to contribute to creating the circumstances in which climate goals can be achieved.
The Bottom Line
Pension funds hold immense potential to drive meaningful action on climate accountability while securing long-term economic stability for their members. Funds that implement comprehensive climate risk assessments, align their investments with ESG criteria, and leverage shareholder influence can safeguard the retirement security of millions of workers and contribute to a just transition and equitable economy. This dual focus on financial resilience and environmental stewardship emphasizes the transformative role pension funds can play in addressing the climate crisis.
Pension funds must fully embrace their responsibility as leaders in climate accountability for their members and communities.
