How Our Public Pension Dollars Can Advance Climate Justice

Public pension funds exist to provide a dignified retirement for millions of workers. But they also offer the public a powerful tool to influence corporate behavior. We are, after all, talking about $6.17 trillion as of December 2024.

Our eyes often glaze over when we are talking about trillions of dollars. To translate that into everyday terms, $6.17 trillion works out to over $18,000 per person in the United States or over $72,000 for a family of four.

What are public pension trustees doing with that public money? What should they be doing? And how can they balance their public goals with their fiduciary duty to support the retirement of state and local government workers?

In 2020, Climate Finance Action (CFA) began to seriously consider how best to work collaboratively with state public financial officers and local union leadership. Now, as executive director of CFA and a member of the first-ever stewardship and sustainability committee of the Massachusetts Pension Reserves Investment Management Board (MassPRIM), these are just a few questions I think about.

What’s at Stake?

Most people, when they think about large investors, think of people like Warren Buffett. But public pension funds are also large investors. For example, as of year-end 2024, MassPRIM had $109.7 billion in assets while CalPERS, one of California’s pension funds, the nation’s largest, had $523.4 billion in assets.

In our present capitalist economic system, pension plans can affect corporate behavior: They can force change by demanding credible low-carbon economy transition plans, integrating science-based standards when investing in decarbonization efforts, and validating that the asset managers they hire integrate governance, environmental, and social data into the fund’s mandates to support long-term returns and a more inclusive economy.

Public pensions are workers’ capital. So, a key question that pension trustees face is how to employ workers’ capital to advance a sustainable, pro-worker agenda that supports an ethical transition to a viable, low-carbon economy while supporting workers’ retirement needs?

While public pension boards have the legal and financial ability to act, they often lack the support they need. State public financial officers such as treasurers, auditors, and comptrollers who can lead on investment strategy and public priorities need tools and policy support. Right now they also lack an organized network to champion fiscal stewardship and face complex political dynamics nationally, in their states, and even within their public state pension systems.

Given the certainty in the near term of continued federal backsliding on climate justice and federal dismantling of regulations favorable to climate resilience and labor rights, efforts to leverage and coordinate state power are vital. However, the current resource and policy gap leaves climate-conscious policies, inclusive economic strategies, and responsible labor management vulnerable.

Opportunities and Challenges

Despite knowing that climate change will (and does) have enormous consequences if not addressed, many investors continue to avoid accounting for climate-related financial risks—let alone try to mitigate them.

Decision-makers at various levels are making pension investments in companies that are responsible for significant carbon emissions—including methane, deforestation, and other conditions spurring the climate crisis. The tendency is to shy away from applying sufficient pressure on company boards to act responsibly.

This business-as-usual investment approach is costing investors, workers, and countless local communities and economies. In fact, data show that failing to consider the environment can erode retirement savings and exacerbate the economic and social consequences of climate change and other societal issues.

Public pension fund assets offer state financial officers and trustees the opportunity to set industry standards for responsible investing practices that safeguard the long-term value of worker investments and account for emerging risks.

However, political resistance, regulatory uncertainties, and market barriers hinder their full engagement. In recent years, state treasurers in Texas, Florida, and elsewhere have imposed their ideological biases on ordinary Americans, opposing profitable investments such as those that address the proven financial risks posed by the climate crisis.

Lawmakers in at least 16 states have introduced or adopted laws discouraging responsible investing and material risk considerations, and penalizing investment managers pursuing investment opportunities with firms implementing responsible investing policies.

This politicization of climate equity and justice as a policy goal has made some pension funds, asset managers, and other financial officers reluctant to commit to long-term shifts toward sustainability. New tools and the support of local stakeholders are needed to catalyze the leadership of a new generation of financial officers to protect the interests of workers and the planet.

Activating Public Pension Power

So, what can be done? For states with progressive, values-aligned elected state financial officers, these officials can work with public pension plan trustees to implement innovative policies that benefit workers, communities, and state pension plans.

This approach might look like embracing investment practices that secure a climate-resilient future for workers, communities, and the economy.

In many states—especially those where Democrats control both houses of the legislature and the governorship—the elected financial leadership and the investment staff are poised to develop and execute sensible, sustainable investment policies and practices aligned with fiduciary duty. Making these changes happen requires an understanding of the tools available to evaluate the fund’s risk and transparency and power sharing to be effective and durable. The process can look like this:

1. Conduct a climate risk analysis to understand just how climate-resilient a pension’s investments are. Frameworks like the Task Force on Climate-Related Financial Disclosures (TCFD) reporting and Science-Based Targets provide clear guidelines for assessing and mitigating risks tied to climate change.
2. Set concrete goals to address the climate risk in the fund, including actions for transitioning away from high-emitting, high-risk companies. This work includes identifying key themes that matter most to a fund’s investing strategies to deliver a dignified retirement for workers.
3. Use existing levers to address corporate behavior, holding companies accountable for creating action plans that include reducing emissions, increasing equitable business practices, and protecting worker health. Initiatives like Climate Action 100+, Principles for Responsible Investment’s Advance, and Nature Action 100 are mobilizing investors to push companies to take action on climate change and worker-related issues.
4. Embrace economic opportunities that prioritize climate solutions, such as investing in renewable energy, affordable housing, and an ethical transition that prepares workers and communities to participate in a low-carbon economy.
5. Give political cover for environmental policy change by offering support to measures that may carry an up-front economic cost but offer long-term sustainability benefits. For example, a group of major investors pressed the US government to adopt more stringent methane regulations.

Effective communication around what the fund is doing, why the organization believes in it, and what it will take to succeed builds credibility and trust with stakeholders—and are building blocks to develop engagement opportunities that resonate with and benefit public employees.

Given current administrative and political uncertainties, the best way to achieve these changes and maximize impact is by collaborating with colleagues—forming coalitions to share resources and strategies and strengthen their joint bargaining power to support the movement for climate justice and social and economic equity. This collective commitment and accountability would undergird their policy advocacy. Possibly, as Peter Sabonis suggests in NPQ, interstate compacts might be a useful tool in further coordinating action.

As stewards of public pension funds and influential investors, values-aligned financial officers can catalyze broader shifts toward a low-carbon and equitable economy and address heightened risks brought on by direct threats such as the undermining of investors’ governance tools, attacks on unions and organized labor, and attacks on clean energy investments through the dismantling of federal policies such as 2022’s Inflation Reduction Act.

These days, corporate voices are notably silent—or vocally currying favor with those whose actions they once opposed. Corporations facing pressure from Washington need to feel counterpressure from other parties. Public pension funds can be an important source of some of this counterpressure. More broadly, public state financial officers can be the leaders this moment demands by building strong, diverse coalitions, sharing resources, and aligning strategies to drive responsible investment practices and protect workers’ retirements and long-term economic resilience.

Joining the Call

Activists, advocacy groups, and nonprofits all play a vital role in educating the public and stakeholders about the importance of investing public pension dollars in accordance with climate justice principles and advocating for policy changes that incentivize sustainable investment practices that benefit people and the planet.

Serving as bridge builders challenging corporate and government inaction and amplifying the experiences of workers, retirees, and frontline communities affected by the climate crisis, these groups can not only cultivate systemic change in financial markets but also educate their communities.

For example, the Trustee Leadership Forum convenes pension plan union trustees through a peer mentoring project, while Climate Finance Action’s Investing In Our Future: A Guide for Climate-Conscious Pension Strategies equips local unions with the knowledge needed to make the connections between climate change, financial investment, and economic wellbeing. These are just two examples of many growing efforts to support workers and retirees in activating their influence for change.

Together, nonprofits and advocates can create the political pressure needed to push public pension funds to invest in support of climate justice goals and hold state financial officers accountable for their fiduciary responsibilities.