Climate Risk and Maryland Public Pensions
We all know that climate change is real, that it’s already here, and that it is going to have a
profound affect on the lives of every human being. It will transform the global economy and we need to
be ready for it. We need to ready our financial systems for any impacts caused by climate change.
1. What is Climate Risk?
Climate risk is a term for the financial risks that climate change imposes on an asset. These risks include factors such as:
- The risk from stranded assets (unusable fossil fuel reserves) as we transition away from
- The risk from the physical effects of climate change like rising sea levels
- The risk from the impact of regulatory changes
- The risk from climate related litigation
Like any financial risk, investors need to be aware of the risks that come from climate change and include them in their investment decisions.
2 Do Our State Pensions Adequately Account for Climate Risk?
No, they do not. The Maryland State Retirement and Pension Systems have no policy that specifically requires analysis and reporting on climate risk.
3 What Could Happen if we Ignore Climate Risk?
Research shows that climate risk is a serious and growing risk to the financial health of
investment funds. Citigroup estimated in 2015 that over $100 trillion in assets are at risk just in the fossil fuel sector alone. Major institutional investors like Vanguard and Blackrock are increasingly requiring climate risk assessments from companies. Yet Maryland pensions do not require this level of disclosure,despite the fact that they have long-term investment commitments to our state retirees.
4 Will Addressing Climate Risk Help Fight Climate Change?
Yes. As pensions make it clear that they don’t see companies who ignore climate change as good investments, they pressure companies to orient their businesses around a low carbon economy instead of supporting climate denial or fighting needed policies.
5 What Needs to be Done?
We are asking Maryland to pass legislation requiring that all state pension plans consider climate risk as a material financial risk, and that they require disclosure on climate risk issues from companies they invest in. California is already considering such legislation and other states need to step up and lead on this issue. But that's not all. We also want the state to divest its public pensions from fossil fuels and work to decarbonize its portfolio. Divestment and climate risk analysis go hand in hand and will work together to build a portfolio that does the right thing for our climate and our pension investments.