Connecting Pension Policies to Retirement Futures
Are you wondering what climate risk really looks like and how pension decisions actually contribute to securing a dignified retirement for workers?
Keep reading to see how we decode a few of the most crucial but wonky policy solutions a pension can take to tackle climate risk regarding what that means for protecting public workers' retirement future. We hope this is a helpful explainer tool for trustees on a board, fund staff communicating with the public, or union leaders engaging in pension policies to protect their members' retirement security
Tackling climate risk is the fund's responsibility
Ignoring the risk that high-emitting companies driving climate change pose to investors, including public pension funds, is irresponsible. These climate-related financial risks dump a huge cost on investors, workers, and local communities and economies.
Pension boards and trustees responsible for managing climate risk in the pension fund's investments need to ensure stable returns for the long term—for current retirees and employees entering the workforce today. This is a key part of their fiduciary responsibility: making sure that the fund's decisions and actions are in the best financial interest of all beneficiaries.
Given the pension systems’ commitment to American workers who have put in decades of hard work for the chance to enjoy a dignified retirement, their investment and engagement approaches need to take long-term risks like climate change seriously.
Four steps funds can take to protect itself from climate risk– and why it matters
1- Include climate risk as part of the board's fiduciary responsibility in its foundational Investment Policy.
This sets the stage for a fund’s agency, capacity, and tools needed to protect retirement savings from climate risk. Three ways this move helps secure workers' retirement future:
Better accounts for climate economic risk factors in investment performance. (That could take many forms, from operating in a high-carbon economy or air quality & workforce safety hazards to climate disaster zones.)
Maximizes opportunities in climate solutions that can foster a healthier state economy, quality jobs, and potential high-growth investments.
Access the resources needed to better understand risk in its portfolio, and transition to lower-risk investments that are more stable for the fund's long-term health.
2- Set a more sustainable Investment Strategy.
The fund's investment strategy can establish criteria, direction, and timeline to move investments away from companies loading a pension fund with high climate risk and embrace financial opportunities in climate solutions.
This will help to better see where risk is lurking in funds’ performance reviews, better understand just how sustainable and climate-resilient the companies in the portfolio are, and invest in ones with real staying power to ensure funds protect a dignified retirement for today's retirees and those joining the workforce today and tomorrow.
3- Expand climate risk monitoring and analysis tools.
More accurate and reliable information is key for pension systems to make smart and timely decisions. By expanding climate risk monitoring and analysis tools, those funds can more accurately assess risk, gauge their investments' long-term value, and make strategic decisions.
4- Strengthen Shareholder Influence.
To protect the fund's health, the pension system needs to ensure the companies it invests in are acting responsibly. That includes limiting risk to the company's long-term success, which is essential to the pension funds' long-term returns, and lessening the destruction of climate on the overall economy and society we depend on.
Through stronger proxy voting guidelines and corporate engagement, pension systems can more effectively ensure companies' responsible behavior in addressing climate risk, increasing more sustainable and equitable business practices, and seeking to protect worker health and job stability.
Workers' retirement savings get hurt when pensions can't use the tools they need to understand and manage an array of risks and opportunities in their investment decisions.
Why securing climate finance policies and practices is so crucial
Throughout the U.S., hyper-conservative groups are intensifying their attacks on financial institutions for taking into account important factors that pose significant risks. Restricting pension funds from key data is especially dangerous and irresponsible, given the funds’ responsibility to ensure long-term returns to protect the retirement savings of generations of workers.
Workers' retirement savings get hurt when pensions can't use the tools they need to understand and manage an array of risks and opportunities in their investment decisions. As threats to the health of workers' retirement futures like this arise, pension systems must take steps to protect their ability to protect the fund.
ABOUT CLIMATE FINANCE ACTION
Climate Finance Action (CFA) is a women-led, 501(C)3 non-profit organization equipping stakeholders and decision-makers to leverage the transformative power of publicly-held capital for real-world climate solutions to ensure a just transition to an inclusive economy in favor of people and the planet. With a focus on collaboration, education, and strategic partnerships, CFA has facilitated groundbreaking dialogues, developed comprehensive educational materials, and engaged with numerous stakeholders— educating 8,000+ union leaders and members and advising over 40 state treasurers and pension staff working towards policy reform.
