Pathway Policies

These policies bring a consideration of climate change risk and opportunity into investment decision-making. Policies include those that:

• Recognize climate risk as financial risk and strengthen their conception of fiduciary obligations to expand the interpretations of beneficiaries’ “best interest” to include ESG risks. This could include a statement of investment beliefs for stewardship.

• Require portfolio-wide disclosure of climate risk including public equities, private equity, fixed income and real assets. Disclosure is a key step in understanding risk and driving toward a just transition.

• Integrate climate risk assessments into state budgeting and investment practices. It’s critical to look closely at portfolio risks keeping in mind impact on fund performance to generate outcomes.

• Ensure proactive third-party due diligence. Policies around how asset managers, proxy voting services and consultants are held accountable for mitigating the risks of climate change and ensuring a just transition to a green economy.

• Direct assets to support the energy transition. These policies look beyond mitigating climate risk toward how pension investments can support the energy transition and local economies through infrastructure and green energy investments.

These policies enhance and materially embed climate risk management and mitigation into proxy voting policies. Policies like:

• Director voting policy. Guidelines that include specific language that the fund may vote out directors who fail to adhere to policies consistent with 1.5 C degree warming.

• Adopt a 1.5 degree policy for portfolio companies. This policy would hold that the state and its pension funds may use their proxy vote to vote in favor of proposals that align business practices with limiting warming to 1.5 degrees.

• Create guidelines around climate lobbying and political spending. Portfolio companies must ensure alignment between stated values and lobbying expenditures, including those of trade associations. The policy would allow the state and its pension fund to use its proxy voting power to vote for shareholder proposals that require the disclosure of lobbying activity and the alignment with climate commitments.

• Establish a process for evaluating Say on Climate proposals and vote in alignment with net zero emissions by 2050.

• Policy and strategy for active engagement that results in portfolio-wide reduction in emissions. Engage with all asset classes - public equities, private equity, fixed income and real assets.

• Produce annual public stewardship reports to provide transparency on sustainability actions. Include investment principals, climate risk assessments and proxy voting records as well as what the fund believes as critical ESG issues.

• Promote constructive dialogues between the asset managers the fund hires and investee companies, taking into consideration ESG factors that contribute to sustainable growth.

• Recognize that as a universal owner the whole capital market must grow in a sustainable manner and that participation in global initiatives - PRI, TCFD, ICGN - is necessary.

• Create a stewardship committee/commission to meaningfully analyze and address new priorities concerning the systemic risk of climate change. Regularly track and report on progress.

• Conduct strategic planning alongside stakeholders. Engage key stakeholders, including public pension workers and their unions, in a process to create a pathway for more sustainable investments.