Colorado public pension fund facing climate risk assessment bill

Colorado’s $53bn (€47bn) public pension fund will be required to assess its exposure to climate-related financial risks, if a bill introduced this week is passed by the western US state’s legislature.

The bill, which was tabled by Democratic Representatives Emily Sirota and Chris Hansen, would compel the board of trustees for the Public Employees’ Retirement Association Board (PERA) to hire an “independent third-party” to conduct a climate-risk assessment of the fund’s total assets.

Both Sirota and Hansen were elected in November to the lower house of state’s legislature, the Colorado General Assembly, as Democrats swept the board in the historically Republican state, winning control of both the House and Senate.

Their proposed bill defines climate risks as “material financial risk posed to the fund by the effects of the changing climate”.

It comes as the Federal Reserve Bank of San Francisco has released a research note on the Fed’s responsibility to respond to climate change, describing it as an inherent part of the Fed’s “mandate for macroeconomic and financial stability”. The paper calls for, among others, a carbon tax to correct the pricing of carbon and climate stress tests to assess viability of businesses across a range of climate change scenarios.

The PERA bill cites “intense storms, rising sea levels, higher global temperatures, economic damages from carbon emissions, and other financial and transition risks due to public policies to address climate change, shifting consumer attitudes, and changing economics of traditional carbon-intensive industries”.The bill, which will be heard next month (April 8) by the House’s finance committee, describes its measures as “necessary for the immediate preservation of the public peace, health, and safety”.

If passed, trustees would be given until October 31 to conduct a “competitive selection process to solicit unbiased and independent third-party organizations with the necessary credentials”.

Prospective bidders for the job would be required to “disclose” any “association it had or currently has with any publicly traded fossil fuel corporation or company”, including “any subsidiary, affiliate, or parent of any such corporation or company”.

The climate study will include:

– A comprehensive analysis of the climate-related financial risk of PERA’s portfolio and the exposure of the fund to long-term risks;

– A summary of climate-related financial risk-related engagement activities undertaken; and

– A description of additional action that should be taken, or planned to be taken, by the board to address climate-related financial risk, including a list of proxy votes and shareholder proposals initiated by the board.

Following the study’s completion, the trustees would then have to deliver a report on its findings by July 17 next year.

PERA, which is among the 30 biggest US pension public funds and whose Executive Director Ron Baker is on the board of the Council of Institutional Investors, currently has a funding ratio of just 61%, according to its most recent filing.