Pensions are retirement savings earned by workers through years of public service and deferred compensation. Public employees and retirees are the  stakeholders of their pensions; it's their money. While financial professionals  manage the funds and trustees provide oversight and direction, public workers and retirees have the right to ask questions, voice concerns, and advocate for investment practices that align with their values, long-term financial security, and the well-being of their communities.

Pensions provide income after retirement, supporting financial stability and dignity later in life. Pensions also help attract and retain a strong public workforce. Pension funds have a fiduciary responsibility to manage long-term health to deliver for today’s retirees and future generations of workers.

Pension funds are major players in the global economy with nearly $6 trillion in worker retirement savings. Where and how that money is invested matters. Climate change poses serious risks to these  investments, from extreme weather damaging infrastructure to shifts in regulation and market value affecting fossil fuel companies. Ignoring these risks could mean losses for pension holders down the line.

Pensions have significant power as major institutional investors. They can better protect long-term retirement security by assessing and adjusting their investment strategies to reduce exposure to climate-related financial risks, such as those linked to fossil fuels and depletion of natural resources. At the same time, investing in climate solutions like clean energy, sustainable infrastructure, and resilient local economies allows pension funds to support an ethical transition. These actions reduce risk and help build a more equitable and sustainable future for workers and communities.

Fiduciary duty is the legal and ethical responsibility to act in the best interest of pension holders, which means recognizing that climate change is a financial risk and that ignoring it could harm beneficiaries. Mitigating climate risk aligns with this duty by protecting long-term value. There are several key components of fiduciary duty:

• Duty of Loyalty: Trustees must act solely in the interest of plan members and their beneficiaries, not any appointing entity or external interest.

• Duty of Prudence: Trustees must make careful, well-informed decisions, including conducting due diligence and seeking expert advice when needed.

• Duty to Diversify: Investments should be sufficiently diversified to minimize the risk of significant losses.

• Duty to Follow Plan Documents: Trustees must follow the pension fund’s governing documents, as long as they comply with applicable laws.

• Duty to Pay Only Reasonable Expenses: Administrative and investment costs must be appropriate and justifiable.

Learn more about fiduciary duty in this worksheet.

The governance of US state pension plans is a complex system involving multiple stakeholders and legal obligations, primarily centered around a board of trustees with a fiduciary duty to act in the best interests of plan members. The specific structure and distribution of responsibilities can vary considerably across the different states. 

• Board members: are elected to represent the fund’s beneficiaries (teachers, unions) and appointed by the State Treasurer and Governor.

• Retirement System Staff: are investment, research, and administrative personnel, led by an executive director and chief investment officer, and are responsible for the day-to-day investment and oversight of the pension system. This staff implements the board's policies.

Visit Public Retirement System Governance to learn and explore more about pension fund governance, and to learn more about the “who’s who” of the pension finance world, explore CFA’s Demystifying the Pension Finance World, Part 1 of CFA’s Investing in Our Future Guide.

‘Ex officio’ is a Latin phrase that translates as “from the office.” According to the Merriam-Webster Dictionary, ex officio means “as a result of one’s status or position” or “denoting or relating to a member of a body who holds the role as a result of their status or another position they hold.” Ex officio board members, such as state treasurers, comptrollers, and auditors, have all the same rights, privileges, duties, and obligations as any other board member.

The fates of our climate, labor standards, and economic resilience are deeply intertwined. Climate finance is about shaping the future of our economy, and when guided by strong values and oversight, it can support an ethical transition that centers workers and communities. Public pension funds, as major investors of worker capital, have both the power and responsibility to advance climate solutions that strengthen labor protections and drive long-term economic stability.