The global cost of extreme weather attributable to climate change is estimated at $143bn per year over the past 20 years, according to a 2023 study in scientific journal Nature. Despite this, US state pension funds are “not taking adequate steps to reduce climate-related financial risks”, finds a new report from three environmental organisations.

“Far too few state pensions are taking adequate steps to address climate-related financial risks and protect their members’ hard-earned savings, raising serious concerns about their execution of fiduciary duty – the obligation that financial institutions have to act in their clients’ best interest,” finds the report by Sierra Club, Stand. earth and Stop the Money Pipeline.

State pension funds have a responsibility to account for these risks, not only because they oversee huge sums of public money but also because they are particularly exposed to “climate-related and other systemic risks” as “diversified and long-term shareholders”, the non-profits argue. State pension funds ought to be “the first [institutional investors] to incorporate such considerations into their stewardship practices”, they say.

The report assesses 19 pension funds representing more than $2trn in collective assets across three metrics: their climate-related proxy voting guidelines (which outline criteria pension staff use to address shareholder resolutions); climate-related proxy voting records; and finally, their transparency on the above.

Each fund was given a grade from A to F based on these differently weighted factors. Just three state pension funds – all from New York City (NYCERS, TRS, BERS) – received an A- grade; one fund, the California State Teachers Retirement System, or CalSTRS for short, received a B-; while ten got C-D grades and a further six received the lowest possible grade, an F.

As proxy voting guidelines are “one of a pension’s strongest tools for corporate governance”, the report authors attribute a 75% weighting to this metric. The three New York City funds are among those praised by the report’s authors as having relatively strong proxy voting guidelines on climate change, due to their incorporation of language that “recognizes the system-wide risks from the climate crisis, and allude to how that impacts their voting decisions”.

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