While some pension funds are using proxy voting to effectively manage climate-related risks, “far too many” funds are falling short, according to a report from the Sierra Club and Stand.earth released Feb. 10.
The report, titled “The Hidden Risk in State Pensions: Analyzing U.S. Public Pensions’ Responses to the Climate Crisis in Proxy Voting,” analyzes 32 of the largest public pension funds in the country, grading them based on their proxy-voting guidelines and proxy-voting records for the 2024 season.
“The findings of this analysis are clear: While some states are beginning to use proxy voting as an effective risk management tool, far too many state pensions are still failing to take adequate steps to address climate-related financial risks and protect their members’ hard-earned savings, raising serious concerns about the execution of their fiduciary duty,” the report said.
The $105.3 billion Massachusetts Pension Reserves Investment Management, Boston, was the only pension fund to receive an A grade overall, with an A for its proxy-voting record and a B for its proxy-voting guidelines.
The $274.6 billion New York State Common Retirement Fund, Albany, was the only pension fund to receive an A for proxy-voting guidelines alone, while eight different pension funds received an A for their proxy-voting records, including MassPRIM, the $533.4 billion California Public Employees’ Retirement System, Sacramento, and the $148 billion New York State Teachers' Retirement System, Albany.
In last year’s inaugural report, three different pension funds received an A- for their overall scores: the $96.5 billion New York City Teachers’ Retirement System, $80.5 billion New York City Employees’ Retirement System and $8.6 billion New York City Board of Education Retirement System. Notably, that report's selection of 24 pension funds "focused on self-identified climate leaders," while "the 2025 version looks at the proxy voting records and guidelines of the largest and most influential public pension funds in the U.S.," according to the Feb. 10 report.
Eight of the pension funds analyzed in the new report are based in states with anti-environmental, social and governance laws or executive actions. The pension funds in those states — Arizona, Florida, Indiana, Missouri, North Carolina, Tennessee, Texas and Virginia — “scored lower than their peers and have fewer guidelines in place to protect the funds’ interests from poor climate performance,” according to the report.
However, “a number of pension funds with no such legal restrictions have minimally better guidelines in place,” the report said.
The report ultimately makes four recommendations for the pension funds cited in the report:
- “Strengthen proxy voting guidelines to better protect portfolios from sustainability risks.”
- “Engage asset managers and proxy policy advisors to align on sustainability.”
- “Support public policy and legislative reforms to mitigate sustainability risks that impact portfolios.”
- “Join asset owner initiatives working to address sustainability risks.”
“Despite the fossil fuel industry’s ongoing attacks on responsible investing, more pension fund leaders are recognizing that climate change threatens to destabilize our entire economy. But they must do more to mitigate this enormous risk,” said Allie Lindstrom, senior strategist for the Sierra Club’s Sustainable Finance Campaign, in a Feb. 10 news release. “To ensure they can meet their obligations to protect retirees’ hard-earned money for decades to come, pensions must strengthen their proxy-voting strategies to hold corporate polluters accountable and support climate progress.”
