With the past few decades confirming the existence of global warming on a worldwide scale, a number of leading authorities are starting to take notice. Pension funds across the world, and in the US in particular, have been forced to make a series of dramatic changes in an attempt to respond to the ongoing climate change threat. Pension software provider Procentia has taken a closer look at some of these changes.
What you can expect in this article:
Lagging behind the rest of the world
As the largest asset allocators in the country with an estimated $4.5 trillion in assets under management, US pension funds should be prioritising their response to climate change and sensible investing. But by comparing pension funds in Europe and Asia with those of the US, a vast majority are yet to implement solid environmental, social, or governance (ESG) standards when it comes to their investments. However, if you are looking for an ethical pension fund to grow your savings, there are a growing number of pension funds available designed with environmental ethics in mind for eco-conscious retirees.
Re-examining investment plans
With the threat of global warming now more ever-present than ever, a number of pension funds in the US are being forced to re-examine their existing investment plans. This will ensure they are not only investing responsibly but planning ahead for an uncertain future. It is no longer an option but a necessity for pension funds to consider the threat of climate change on future investments as a whole. With some of the world’s most successful investors taking a step back from investing in environmental investments and divesting from fossil fuel conglomerates, they are leading the movement by risking financial gain to reduce the effects of climate change.
Backing pushes for new legislation
A number of pension funds in the US have backed government officials in their plans to divest public retirement funds from fossil fuel interests. Governors in New York and Maine are amongst those appealing for immediate change. Maine governor, Janet Mills, for example, has already signed legislation ordering state officials to remove around $1.3 billion in fossil fuel investments from the state’s public employee retirement fund, which is worth an estimated $17.6 billion, before 2026. President Biden has also issued an executive order calling on his administration to consider financial risks as well as the country’s Labor Department to analyse how the retirement board plans to anticipate these risks.
Slow progress is still progress
Despite a somewhat delayed reaction to the threat of climate change, a number of leading US pension funds have taken steps in the right direction. The California Public Employees’ Retirement System, for example, is currently leading the pack. As one of the largest public pension funds in the US with over $444 billion in assets, they are currently the only pension fund in the country to have signed up for the Net-Zero Asset Owner Alliance. A coalition of over 30 of the world’s largest international investors, it is committed to slicing carbon emissions associated with the companies they invest in by up to 29% within four years. Whilst this is a great start, almost 50% of pension funds in Europe and Asia have committed to taking steps towards achieving net-zero emissions before 2050.
A rise in net-zero pensions
With US pension funds signalling a commitment to net-zero emissions, a rise in net-zero pensions is imminent. The New York State Common Retirement Fund, which is worth an estimated $226 billion, is determined to achieve this milestone by 2040, a decade earlier than most. It plans to do so by ceasing its evaluation of nine oil sands companies and re-evaluating its investment in oil and gas. As a result, more pension funds than ever before are being forced to take a look at their pension software to review their energy company investments and drop these they feel no longer meet their standards for a greener future. Divestment continues to be viewed as a last resort in the country with some state governor’s more keen to capitalise on this tool than others. If the planet’s temperature was to warm by 6 degrees, this could lead to a loss of $43 trillion compared to the world’s stock market worth of $70 trillion.
The ongoing threat of climate change has forced a number of global industries and sectors to overhaul their current processes. With trillions and counting in assets, US pension funds are beginning to respond. Despite lagging behind the rest of the world, many have put plans in place to re-examine their investment plans and back pushes for new legislation, leading to slow but steady progress. As a result of ongoing change and development, US pension funds are also expected to experience a sharp rise in net-zero pensions in the coming years.
