Blue state pension funds failing to ‘adequately use proxy power’ on climate

Analysis of voting guidelines and records finds gaps on director accountability and systemic risk at Democrat-leaning state investors.

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A number of public pension funds in Democrat-leaning US states do not “adequately use their proxy power” to mitigate climate risks, a group of NGOs has warned.

A report by the Sierra Club, Stand.earth and Stop the Money Pipeline analysed proxy voting guidelines and activity by 24 public pension funds in states where a state-level official is a member of For the Long Term, a non-profit that aims to “help public treasurers leverage the power of their offices to deliver sustainable long-term growth”.

It found significant disparities between the best and worst performers, with only three funds – all of them part of the New York City pensions system – achieving an overall A grade and six receiving the worst F grade.

The New York City Employees, Teachers and Board of Education retirement systems received the highest grade for their voting guidelines, followed by CalPERS, the Vermont Pension Investment Corporation and the remaining New York funds.

Of the funds assessed, 12 received an F, including the Washington State Investment Board (WSIB) and Illinois State Board of Investment.

A spokesperson for the WSIB told Responsible Investor that it had backed many environmental proposals over the years.

It added that assessments are “often highly nuanced”, and that it would not support a substantially implemented resolution, or one that was overly prescriptive or not aligned with its guidelines or investment approach.

“Our global proxy voting guidelines explicitly give us the latitude to make these assessments and cast our votes accordingly,” the spokesperson said.

Illinois did not respond to a request for comment.

Voting policies varied in quality across the themes assessed. CalPERS drew praise for its approach to director accountability and Free, Prior and Informed Consent, while all NYC funds outperformed CalPERS on lobbying and biodiversity.

Among the most common issues with voting policies were poor policies on director accountability, and failure to take indigenous rights, lobbying and biodiversity into account.

In order to analyse actual voting performance, the researchers looked at climate resolutions filed at the six largest US banks, as well as support for their directors, in the 2023 proxy season.

Banks were chosen because they had seen resolutions filed on a spectrum of climate topics including disclosures, lobbying and indigenous rights.

Two funds – the Massachusetts Pension Reserves Investment Management (MassPRIM) and Oregon Public Employees Retirement Fund (OPERF) – scored relatively poorly on their policies but redeemed themselves when it came to voting.

MassPRIM was the only fund to support all the resolutions and oppose every chair of a committee responsible for climate risk oversight. Oregon backed all the resolutions but only opposed two directors.

CalSTRS, CalPERS and all five New York City funds also received the top grade for voting, while retirement systems in Rhode Island, Wisconsin and Minnesota performed well.

However, the researchers raised concerns that votes sometimes did not reflect the guidelines they were based on.

They warned that guidelines should be updated if the voting approach moves beyond what is set out in them, or that they should act as a minimum standard where voting is less robust.

Funds were also graded on transparency, based on the public availability of policies and voting records. Most funds scored an A, but for several the researchers had to obtain guidelines and records through freedom of information laws.

The researchers set out a series of recommendations for best practice voting policies, and called on the funds to engage their asset managers and proxy advisers on climate risks as well.