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Lack of climate risk analysis in retirement fund sparks concern

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The board overseeing the largest public retirement plan in the United States has not comprehensively assessed the risks climate change poses to its investments, a US federal agency says, sparking fears retirement savings pots could be at risk.
The Federal Retirement Thrift Investment Board (FRTIB) says its investment strategies already price in such risks to its portfolio as they track broader indices of companies coming under new pressure to disclose climate risks.
But federal investigators tasked with ensuring climate risks are accounted for in all areas of the government say the board “has not assessed the potential investment risks that climate change poses” to the Thrift Savings Plan (TSP).
The TSP, established by Congress in 1986, is a pension-like fund for the US federal workforce and has about 6 million participants and $735bn in assets as of April.
The striking findings, detailed in a government watchdog report released last month in response to a congressional inquiry, threaten to impede President Joe Biden’s push for a “whole of government” approach on climate change.
They also run counter to efforts in a growing number of US states and cities to ditch fossil fuel investments in their own pension funds to try to lower risks.
The Government Accountability Office (GAO), the watchdog agency that conducted the study, recommended the retirement board’s executive director re-examine the investment plan “in light of risks related to climate change.”
In response, Executive Director Ravindra Deo said the board is closely monitoring requirements for broader climate-related disclosure but considers that the plan’s portfolio adequately takes climate risks into account as it is required to track key indices.
“There is material disclosure of climate risk by individual firms currently, even if imperfect,” Deo told the GAO, saying he believed market forces effectively priced in the risks.
One difficulty in shifting investments in response to climate risk is that the statute governing the retirement plan bars the board from directing investments to specific assets or exercising voting rights associated with securities.
In its report, the GAO noted that “officials said that if they found a particular company to be at heightened risk from climate change they could not change how any of TSP’s funds are invested in that company to account for the risk.”
Separate managers oversee each of the funds operated under the board’s supervision.
Deo said the board, with advice from consultants, will review the funds it invests in over the next budget year starting in October.
Its most recent review, in 2017, didn’t result in any recommended additions to the TSP fund line-up, he said.
The board did sign off on a new “mutual fund window” that gets around the statute’s investment restrictions by allowing plan participants themselves to take a more active role in picking climate-friendly funds, starting in summer 2022.
Lawmakers in Washington want to go further.
US Senator Jeff Merkley, a Democrat from Oregon, is among those pushing legislation to establish an advisory panel to assess climate risk. It could pave the way for a new portfolio option that excludes any investments in fossil fuel companies.
“This crisis is… putting individuals’ life savings, and our entire economy, at major risk,” Merkley said.
That risk “has led some of the world’s largest and most sophisticated investors to begin divesting from fossil fuel projects,” he added. “Our hardworking federal employees, who number in the millions and work in every state across America, deserve the same option.”
Merkley, along with Senator Maggie Hassan, a Democrat from New Hampshire, had asked for the GAO investigation into how the retirement board is factoring in climate-related risks.
The plan’s board has formally opposed Merkley’s legislation, saying it would gut the concept of passive investing — or tracking other indices — by forcing members to “pick winners and losers.” 
— Thomson Reuters Foundation