NEW CALIFORNIA LAW COMPELS PENSION FUNDS TO DISCLOSE CLIMATE-RELATED RISKS IN THEIR PORTFOLIOS

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1 october 2018


California turns up the heat on climate change disclosures


New law requires big pension funds to provide more information on environmental risk


Jennifer Thompson, Financial Times, September 29, 2018

The wildfires that ripped through the heart of California this summer were mostly under control by the time Senate bill 964 was approved by lawmakers in late August.

Scientists say climate change is leading to the increase in such catastrophes.

It is grimly ironic, then, that landmark legislation, to compel two huge US pension funds to disclose more about how they manage climate-related financial risk, was born as the land smouldered.

The new law in California will require Calpers (the California Public Employees’ Retirement System), which oversees $360bn in assets, and Calstrs (the $228bn California State Teachers’ Retirement System) to report publicly on the climate-related financial risk of their public market portfolio.

The legislation defines this risk as “the effects of the changing climate, such as 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, changing economics of traditional carbon-intense industries”.

The reports will begin in 2020 with updates every three years. They must describe the actions the funds will take to address these risks, such as shareholder proposals they make to companies in which they invest.

“Given the potentially catastrophic consequences of climate change, the documented social and economic cost of carbon and the emerging body of literature on the material financial risks of climate change, retirement boards simply cannot disregard financial climate risks,” the act states.

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