Public Pensions as Climate Heroes

A very big idea baked into MA Senate bill SD2252 (which will eventually get a new number) is that public pension plan fiduciaries have the potential and obligation to be “climate heroes.”

The bill makes the case that fiduciaries of public pension plans, or – more broadly – fiduciaries of what’s called defined benefits plans, have a specific purpose:

To deliver a dignified future retirement for a diverse set of eligible beneficiaries – most of whom can only collect on the Pension Promise decades from now. 

That Pension Promise is backed by tens of trillions of dollars worldwide and is obligated now and for as long as the youngest beneficiary is eligible to collect.

For illustration, a 25-year-old new hire today (2023) in a government job who eventually retires at 65 (2063) and lives to 100 (as many more of us will do by 2098) is still collecting regular checks from the pension fiduciary at the dawn of the next century. What finance decisions in 2023 affect the environment of 2098?

The bill requires a “reckoning” in fiduciary choices: What meets both financial minimum returns on investment that creates minimum hardship to the future?  Does fossil fuel investment, which is largely backed by pension plans today, meet the law of fiduciary standards?

Fiduciaries of public pension plans have the mission, duty and enormous financial scale to lead on climate – and they don’t because the laws guiding them are weak or unclear. That weakness is what SD2252 in Massachusetts addresses directly and the questions it answers provides the model for other public pension fiduciaries to follow

One of the key aspects of the climate crisis  that is not addressed in current strategies is scale. Neither the Paris Accord nor a coordinated corporate sustainability initiative is big enough. Competing priorities and a growth imperative in both government and industry mean climate is beyond their scope: It’s too costly and a drag on growth that may, in some cases, be legally mandated.

Another key aspect of a climate response is money – or lack of it. For better or worse, our global society is transactional and the lifeblood of that economy is money. A “just energy transition” from oil and gas to greener, equitable energy systems costs trillions now, and more later. A climate impasse is the result of not enough money to do the job, when there are many other jobs to do at the same time.

There is a place for both government policy and improved corporate behavior in the name of climate, but not as a hero. So, a climate hero will have enough resources to deal with the climate crisis at the scale of the climate crisis without the complication of competing or “anti-climate” agendas.

So, who or what is a viable climate hero?

Fiduciaries of public pension plans, or more broadly, fiduciaries of defined benefits plans. These people have the specific purpose to deliver a dignified future retirement for a diverse set of eligible beneficiaries – most of whom can only collect on the Pension Promise decades from now when climate is even more of a concern.

Who is bigger than any government or industry?

Fiduciaries of global defined benefits pension plans control currently about $26 trillion in holdings. In the US alone, $5 trillion in defined benefits plans represent 30 million workers, most of whom are too young yet to collect the benefits.

Who is unworried about national security, borders and competitive advantage in the game of geopolitics? 

Fiduciaries of global public pension plans are designed only to deliver the Pension Promise as part of a public good to support older people in their deserved “third act.” They can also collaborate without fear of competition: An alliance of public pensions can buy (and retire) the richest 20 oil and gas companies from the public equities markets for $4.3 trillion and have about $20 trillion left over.

Who has finance options beyond the speculators on Wall Street, volatile market-clearing prices and short-term profit grabs?

Fiduciaries of global public pension plans have an array of options — though they sure don’t act like it.

Therein is the opportunity this fiduciary standards bill addresses. How, why and for whom is the richest, aggregated source of public money on the planet put to work in the economy – money that works at the scale of climate?

It might take a minute to shift your thinking on this. The question to ask: “If politicians and CEOs were not tasked with fixing our climate impasse, who is?”

A really good answer is “civil society” – the watchdogs, think tanks, eco-social charities, arts and culture makers, front line activities that comprise what amounts to a check on the accountability of governments and industries.

However, in this status quo economy, our civil society is funded by the largesse from government grants, industry sponsorships and philanthropy from the people made rich through their facility with power and money structures of governments and industries. Civil society is not rich enough, nor powerful enough to break free of its dependence on aid to also fix the climate impasse. So, civil society is also not a hero.

Who’s left?

Fiduciaries are the people and boards of trustees who comprise global public pension plans. These people are in charge of tens of trillions designed to be public goods for the betterment of workers, society and the economy. Pension fiduciaries are collaborative in nature, have more money than anyone or anything else and have a sworn duty to deliver a specific future for specific beneficiaries.

One of the estimates to “decarbonize the economy” is $30 trillion. Fiduciaries of global public pension plans have that kind of money, when other sources of funding free of the duties of care, loyalty and impartiality, do not. That makes fiduciaries climate heroes. Whether they act like it is the basis for this fiduciary standards bill.