Power Tools for Pension Transparency and Accountability on Climate
Pensions are critical for public sector workers so that they can retire with dignity after decades of hard work. Those workers and retirees rely on the state pension funds to use the tools available to understand and manage various risks and opportunities to protect retirement security and advance a healthier, more sustainable economy.
Climate risk is one of the growing dangers to a long-term sustainable pension fund. This blog will cover key levers pension funds can pull to address climate risks and opportunities, and ensure trustees and investment staff are putting policies into action.
Where it Starts
There are many facets of a pension that can be activated to tackle climate risk and pursue climate solutions. A few common commitments and topline policy decisions that funds take up to better address climate risk and opportunity include:
“Investment Beliefs” or “Investment Policy Statement,” naming the need to tackle climate risk as part of the board’s fiduciary responsibility
Inclusion of climate and other issues in the “risk assessments” and “risk management” processes
Proxy Voting Guidelines that Integrate climate risks and opportunities, and why that affects the fund’s health
Stating goals or commitments for “transition”, “decarbonization”, or emissions reduction (sometimes specific commitments to climate mitigation, adaptation, renewable energy, or “clean/ green tech”)
The above statements and policy guidance are key to the fund's role in tackling climate risk and driving more responsible corporate behavior from portfolio companies. (To learn how to determine if a pension fund has taken these steps, see the Demystifying the Pension System section of CFA's Investing in Our Future guide.)
However, real success is about how policies are implemented and if there are tangible outcomes in reducing climate risk and driving value creation, including a more ethical and sustainable economy.
Three Powerful Levers for Transparency and Accountability
To ensure these goals are met, three key levers can help drive greater transparency, accountability, and impact in pension fund decision-making:
Actionable Plans
A concrete transition plan should include clear outcomes, benchmarks, timelines, and frameworks to track progress, including contingency measures if goals aren’t met. Three essential components to consider for a solid plan:
External asset managers. Does the plan include criteria and direction for external asset managers to decarbonize or hit other climate risk goals across all asset classes? What's the timeline for implementation to phase all of its assets to be managed by firms that use approaches to meet these goals? See our Asset Manager Due Diligence handout for more.
Accurate Data and Frameworks. The plan must employ robust climate measurement tools and data frameworks (beyond just the news headlines or company self-reporting) and include monitoring practices that include environmental key performance indicators and climate scenario analyses. See our Data Frameworks handout for more.
Benchmarks for "success" that match goals. Strong plans ensure that the benchmarks and "indexes" the fund uses to compare its overall performance directly align with its climate risk management.
See our handout on transition plans and the accompanying worksheet to evaluate the strength of your plan.
Reporting
Effective governance must include clear, transparent reporting on developments and practices for risk management. The types of clear, accessible information one should expect of a responsible fund include:
On Investing - Regular performance reviews across all asset classes and climate goals; risk and transition-readiness assessments that inform future investment decisions; and reporting on how risks are managed and mitigated.
On Stewardship - Clear proxy voting and corporate engagement plans, including rationale for key votes ahead of "shareholder season," updates throughout the season, and postseason outcomes with lessons learned.
Accessible Communications and Authentic Engagement With the Fund’s Beneficiaries
Improved reporting and information access should be paired with clear communication and meaningful engagement with plan workers and retirees as the fund's direct stakeholders. Advocating for these improvements is essential for beneficiaries seeking transparency and accountability.
This handout covers five ways to strengthen transparency and engagement.
Options include:
Calling on the fund to assess and set an improvement plan for its information transparency and accessibility.
Setting up new events or platforms for communicating, engaging, and weighing in on pension matters, such as forums, seasonal roundtables, or establishing committees.
Pursuing ongoing communications with the fund’s ex-officio trustee (state treasurer, auditor, comptroller) and elected labor trustees.
Exploring coordinated or collective engagement with fellow public unions as well as other workers and communities affected by the fund's investment decisions, to bring more stakeholders to the table for dialogue, education, and engagement in the fund's progress to assess climate risks and opportunities especially at the intersection of labor rights, safe workplaces, community resilience, and economic sustainability.
Ultimately, securing a dignified retirement and advancing a sustainable economy are not separate goals—they are deeply interconnected.
Climate risk threatens the long-term sustainability of investments, but it also presents a chance to drive systemic change through more responsible investing and stewardship accountability.
Public employees and retirees deserve transparency and a seat at the table to shape how their retirement savings are stewarded. We can ensure pension funds meet the moment and serve both people and the planet with stronger policy implementation, transparent reporting, and more authentic engagement.
This work starts with awareness and builds with action.
