By Andrew Eckels
For the last year we’ve campaigned for Washington’s $200 billion pension and investment fund to make a plan to transition out of the fossil fuel industry, significantly ramp up investments in climate solutions, and use its ownership power to push companies to align their business practices with meeting the Paris Climate Accords. We’re a year into this campaign and are excited to share some updates with you on our work and how you can engage!
Why Pension Funds
The bodies of public servants who manage the retirement savings of public sector workers are often neglected by activists, despite managing remarkably powerful institutions. Collectively, pension funds make up a whopping 40 percent of the ownership of publicly traded corporations. They have significant influence they can exert to shape business practices and access to capital. Rather than simply handing over workers’ hard earned money to Wall Street investors, pension funds can and should ensure that business practices contribute to long term economic health. Gains for current retirees shouldn’t come at the expense of people who want to retire decades from now.
Climate Risk
The massive danger to the entire way our societies currently function posed by the climate crisis and billions of people being put in the crosshairs of deadly extreme weather should be enough to move elite actors toward doing everything they can to avert the worst scenarios but unfortunately that is not the world we live in. Pension funds evade responsibility for their investments, claiming their only responsibility is to seek the highest possible returns for the exclusive benefit of their beneficiaries, with a reasonable level of risk. The problem with this argument is not generating wealth for retired pension holder; the problem is how they define a reasonable level of risk. The impacts of climate change pose major risks to economic health and stability; climate change represents an existential threat to our society and species.
Extreme weather events like wildfires, flooding, heatwaves will significantly impact food supply, make whole geographies unlivable year round., a steady torrent of destructive storms will definitely have negative economic impacts. Unfortunately, much of the early economic works trying to project the impacts of climate change on the economy were wildly optimistic. They basically said everything is going to be just fine. That is finally changing.
The Biden administration began to consider the ways climate change is likely to impact the economy. Former Treasury Secretary Janet Yellen raised the alarm about the ways climate will not only impact economic growth, but also could trigger financial crises like we saw in 2008. Two mechanisms for triggering financial crises are of particular concern: physical risks and transition risks.
Physical risks are the ways the physical impacts of climate change cause damage. For financial stability, the primary concern is if enough extreme weather events happen, a “too big to fail” insurer could go bankrupt (the insurance company AIG was the first major financial institution bailed out in order to prevent a catastrophe during the ‘08 crash). Alternatively, as insurers pull out of markets that are too risky, thousands of uninsured homeowners are vulnerable to a climate disaster like hurricane, floods or wildfires. These homeowners could then default on their mortgages, leading to the same outcome: a crash in the housing market, leading to a wider financial crisis. Beyond this risk of crisis, the emerging research on economic impacts predicts major drags on economic growth and increased inflation from declines in agricultural and labor productivity caused by climate impacts. Recent studies project a shocking 19–50 percent drop in GDP growth globally by 2050 already baked in from current levels of warming alone.
Transition risks are the concern that a disorderly transition off of fossil fuels will trigger a financial crisis. The problem works like this: Policy making on climate goes through major swings, yet fossil fuel corporations continue to build out new fossil fuel infrastructure that will take decades to turn a profit. But what if in the coming decades, the impacts of climate change are too severe and as a society we get serious about transition off of fossil fuels? and have to strand assets before they’ve been paid off. All the new infrastructure would then be useless before it’s paid off, becoming ‘stranded assets’.The scale of the fossil fuel industry is such that this stranding of assets, without major intervention of central banks,or some thoughtful pre-planning, would trigger a financial crisis on its own. One might think these risks would slow down fossil fuel development, but the great wisdom of the almighty market thinks otherwise so far.
ESG and the Backlash
Given these risks, one might think that pension funds, as long term investors with a responsibility to offer a stable retirement to people who want to collect a pension in the 2080s (and beyond), and significant power to shape outcomes, would be aggressive climate champions. It would make sense for pension funds to want to ensure we are doing everything we can to meet emissions reductions targets and avoid high warming scenarios where the negative impacts are significantly worse.
Unfortunately, the steps taken so far by pension funds have been mild, uneven, and met with an aggressive fossil fuel funded right wing backlash. On one hand, California, New York and other states are phasing out certain fossil fuel investments, ramping up investments in solutions, and beginning to use their ownership power to push for changes at the companies implicated in the energy transition. On the other hand, pension board members have been dragged before investigatory committees in Congress and red states have introduced and passed a flurry of bill to stifle ESG investing. The fossil fuel campaign derides these tepid moves toward understanding that ESG risks have material impacts on returns as “woke capitalism”. Under Trump, the systems set up to monitor the financial system for systemic risks due to climate have been ended.
Campaigning in Washington and Beyond
In Washington, 350 Seattle is one of several organizations pushing for pension funds to take the risks of climate change seriously, and act accordingly. Over the past year and half, we have introduced legislation that would compel changes at the State Investment Board (SIB), lobbied the SIB directly, and built relationships with the public sector unions and retirement organizations whose members comprise a majority of our state pension funds’ beneficiaries.
At the legislative level, we introduced and worked with coalition partners bills that would compel changes at the SIB. Last year, Representative Davina Duerr introduced a bill that would compel the SIB to use it’s proxy voting power to more aggressively push for companies, especially big banks, to align their business practices with meeting our climate targets.
This year, Senator Noel Frame introduced a bill to end all investments in coal. Given that the SIB is good at meeting its mandate of ensuring a well funded pension fund –this is not as true in other states– legislators are hesitant to challenge the SIB’s financial expertise, or to legislate changes limiting how the SIB operates. The introduction of these bills pushed the SIB to publicly address the issue, and to defend the limited actions they took as adequate, despite their significant limitations.
In addition to working with the legislature, we regularly attend and give public comments at the State Investment Board meetings, laying out our arguments for change, sharing our concerns as pension beneficiaries who wish to retire with a healthy planet and healthy retirement in the coming decades, and recruiting experts to give testimony. The work of persuasion is slow, but beginning to bear fruit. At the last board meeting which followed the day the COAL act failed to make it out of committee, one of the board members asked for a session on coal free index funds at the next meeting. The SIB currently has significant coal investments that we have been pushing them to drop. That is not everything we want but an important step forward.
Finally, we are focused on building relationships and coalition with the public sector unions and retirement organizations whose members make up the majority of the SIB’s beneficiaries. Collectively, these alliances have five of the ten voting seats on the SIB. Last year the Washington State Education Association introduced a resolution at the Washington State Labor Council to form a table of unions to push the State Investment Board on climate change.
Many community members in this campaign are union members, and are raising the issue of climate risk to their pensions in their unions, educating their fellow members and leaders. This work takes time but in just the last year, we saw significant shifts in attitudes and willingness to engage from the institutions who are best poised to turn our pensions funds into powerful actors for climate action.
All of this work is made possible by community members. People who are lobbying their legislators, combing through economic research and turning that information into powerful public comments. People who are organizing their unions and retirement organizations. A year and a half in, we have laid a powerful foundation to take this campaign to the next level. With the Trump administration back in power and federal climate action unlikely, pension funds are more important than ever. We hope you’ll join us in the fight to make Washington a leader on climate action.
Join our mailing list to get updates on ways to plug in including our biweekly meetings. If you’re a beneficiary of the fund let us know here!
