Money managers hoping to win or maintain mandates with some of the largest public pension funds soon will need to have a plan about assessing climate change risk.
The Florida State Board of Administration, California Public Employees' Retirement System, California State Teachers' Retirement System and Connecticut Retirement Plans and Trust Funds all are in various stages of developing a best-practices list to measure how well their external money managers are assessing the risks and opportunities that climate change poses to the companies in which they invest.
Similar measures could be on the way for pension funds in Maryland, Massachusetts, New Jersey, New York, North Carolina, Rhode Island and Oregon, among others.
Pension funds are pressuring their money managers to do a better job in this area because they feel the risks associated with climate change are of growing importance to the success of a company. Some of the major ones include the risk that regulations penalizing companies for excessive carbon emissions will deter profitability; the physical risks posed by rising sea levels and an increase in floods, droughts or storms; and the litigation risk companies could face if they are identified as a major contributor to global warming.
Florida is leading the way. Alex Sink, the state's chief financial officer, sent a questionnaire in October to fixed-income managers that invest portions of the $24 billion state treasury. Soon, external managers of the state's $137 billion defined benefit plan will be asked to fill out a similar questionnaire. (A list of the questions can be found at www.pionline.com/climate.)