Lack of climate risk analysis in US federal pension fund raises concerns
* Federal watchdog warns of climate risks to pension fund * US lawmakers consider phasing out fossil fuels
* States and cities take separate actions to limit risk By David Sherfinski
WASHINGTON, July 12 (Thomson Reuters Foundation) – The board of directors that oversees the largest public pension plan in the United States has not comprehensively assessed the risks climate change poses to its investments, according to a US federal agency, raising fears that retirement savings funds are threatened. The Federal Retirement Thrift Investment Board (FRTIB) says its investment strategies already account for these risks for its portfolio, as they track broader indices of companies under new pressure to disclose climate risks.
But federal investigators responsible for ensuring climate risks are considered in all areas of government said the board “has not assessed the potential investment risks that climate change poses” to the government. savings plan (TSP). The TSP, established by Congress in 1986, is a retirement fund for the U.S. federal workforce and has approximately 6 million participants and $ 735 billion in assets as of April.
The striking findings, detailed in a government monitoring report released last month in response to a congressional inquiry, threaten to hamper pressure from President Joe Biden for a “whole-of-government” approach to climate change. They also go against efforts by a growing number of US states and cities to abandon fossil fuel investments in their own pension funds in an attempt to reduce risk.
RESTRICTIVE RULES The Government Accountability Office (GAO), the oversight body that conducted the study, recommended that the executive director of the pension board reconsider the investment plan “in light of the risks associated with climate change.”
In response, Executive Director Ravindra Deo said the board is closely monitoring broader climate-related disclosure requirements, but considers that the plan’s portfolio sufficiently takes into account climate risks as there is a need to track clues. keys. “There is currently significant disclosure of climate risks by individual companies, even if they are imperfect,” Deo told GAO, saying he believed market forces had indeed factored in the risks.
One of the difficulties in moving investments in response to climate risk is that the law governing the pension scheme prohibits the board of directors from directing investments to specific assets or from exercising the voting rights associated with the securities. In its report, GAO noted that “officials said if they found that a particular company was at increased risk from climate change, they could not change the way TSP funds are invested in that business. company to take into account the risk “.
Separate managers oversee each of the funds operated under the supervision of the board. Deo said the board, with the advice of consultants, will review the funds it invests in during the next fiscal year starting in October.
Its most recent review, in 2017, did not result in any recommended additions to the TSP line of funds, he said. The Board of Directors approved a new ‘mutual fund window’ that bypasses investment restrictions in the law by allowing plan members themselves to take a more active role in selecting climate-friendly funds , from summer 2022.
Washington lawmakers want to go further. US Senator Jeff Merkley, a Democrat from Oregon, is among those pushing the legislation to establish an advisory committee to assess climate risks. This could pave the way for a new portfolio option that would exclude any investment in fossil fuel companies.
“This crisis (…) puts the life savings of individuals and our entire economy at risk,” Merkley told the Thomson Reuters Foundation. This risk “has led some of the world’s largest and most sophisticated investors to divest from fossil fuel projects,” he added. “Our hard-working federal employees who number in the millions and work in all the American states deserve the same option. ”
Merkley, along with Senator Maggie Hassan, a Democrat from New Hampshire, had called for the GAO investigation into how the pension council considers climate risks. The scheme’s board formally opposed Merkley’s legislation, saying it would gut the concept of passive investing – or tracking other clues – by forcing members to “pick winners and losers.” “.
STATE AND CITY ACTION But officials elsewhere in the United States, including New York State and New York City, have begun to take steps to divest their own public pension funds from the interests of citizens. fossil fuels.
Maine Governor Janet Mills, a Democrat, signed a law last month ordering her state officials to withdraw about $ 1.3 billion in fossil fuel investments from the 17-year-old public employee pension fund, $ 6 billion from the northeastern state by 2026. Biden issued an executive order in May ordering his administration to take a full look at climate-related financial risks. The ordinance ordered the Ministry of Labor to assess how the Federal Pensions Council takes these risks into account.
The United States Securities and Exchange Commission (SEC) also plans to issue new climate change risk disclosure requirements for state-owned companies by October, President Gary Gensler told Congress in May. The GAO cited pension plans in Britain, Japan and Sweden as examples where officials similarly use a “passive” investment strategy but have nonetheless taken steps to reduce exposure to the climate.
This has happened in part by actively encouraging companies to be transparent about their own climate risks and, in the case of Sweden, by publicly naming companies that are drilling for oil in the Arctic or opposing legislation on it. climate change, for example. The watchdog acknowledged that these officials may have more power to invest or divest specific funds than the Washington-based board of directors.
While acknowledging its legal restrictions, climate smart investors say the board’s reluctance to take a closer look at climate threats poses an unacceptable risk to current and former federal employees who now rely on funds, or the will do in the future. “The market absolutely doesn’t factor in the price (of climate risk),” said Steven Rothstein of Ceres, a US-based nonprofit that works to reshape economic systems to deal with climate and other risks. .
“Is the board really saying there is nothing they can do to prepare for risk and fulfill their fiduciary responsibilities? Emily Kreps, who works in capital markets for the nonprofit CDP group, said it was especially important for boards to understand the current systemic risks for pension and retirement funds.
“I recognize this is a daunting task, but it is of concern because these types of risk assessments need to be undertaken,” said Kreps, whose group operates a global environmental disclosure system for businesses, cities and towns. the states. “I do not agree that these risks are taken into account,” she added.
(“Reporting by David Sherfinski. Editing by Laurie Goering. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, which covers the lives of people around the world who struggle to live freely or fairly. Visit http: // news. trust.org)
(This story was not edited by Devdiscourse staff and is auto-generated from a syndicated feed.)