New Bill Introduced: HB19-1270 - PERA Public Employees' Retirement Association Board Assess Climate-related Financial Risks

This week, Representative Emily Sirota and Co-sponsor Representative Chris Hansen introduced a bill concerning a requirement that the board of trustees of the public employees' retirement association take certain actions in connection with climate-related financial risks to the various trust funds managed by the association.

The bill requires the board of trustees (board) of the public employees' retirement association (PERA) to retain an organization with experience in public sector pension plans to conduct a study to analyze any climate-related financial risk to the total assets of PERA (fund). The board is required to administer a competitive selection process to solicit unbiased and independent third-party organizations with the necessary credentials to bid for the study and to enter into a contract with the selected organization.

For a full summary of the bill, click here.

What would a climate-related financial risk study accomplish? The study will conduct a comprehensive analysis of the climate-related financial risk of PERA's public market portfolio, and the exposure of the fund to long-term risks. The study will also assess the methods and results of PERA's engagement related to climate-related financial risk with companies that are the most carbon intense, such as utilities, and oil and gas producers within the fund. The board will be required to deliver a report to the general assembly detailing the findings of the firm's analysis by 2020.

Why is this important now? What general trends are at play?

The energy sector was solidly in last place in the S&P 500 in 2018, and second to last place in 2017. Profits have dropped, cash flow is down, long-term debt loads are rising and growth opportunities are limited. Investment risks are also mounting, as are the number of lawsuits seeking billions of dollars in damages from the biggest contributors to climate change, which may significantly impact the value of oil and gas companies and investment returns for the fund.

In light of these trends, the proposed study will address whether PERA is adequately meeting its fiduciary duty & addressing investment risks and projected losses around the likelihood of stranded assets - fossil fuels that will become unburnable in the wake of technological advancements in renewable energy coupled with global commitments to curb climate change. The study will consider possible paths forward in considering investments in an urgent era of climate risk.

Are other pension funds concerned about climate related financial risk? Yes. According to a report issued in 2018 by Arabella Advisors, a philanthropy services firm, 61 pension funds worldwide — including the New York City pension funds, which hold $189 billion in assets — have committed to divesting from fossil fuels since 2016, bringing the total number of pension funds that have joined the movement to 144. Some research indicates that fossil fuel-free investments could offer better returns than conventional ones, though other experts say that fund performance will depend on a variety of market factors.

Is there anyone in Colorado working on this issue? Yes. There is a growing coalition of PERA members, beneficiaries and Colorado taxpayers who are calling on PERA and the Colorado General Assembly to responsibly address climate-related financial risk and take action to minimize the impacts of climate change on the state and pension fund. These efforts align with the accelerating divest-invest movement, which accounts for over $8 Trillion in combined assets already divested from fossil fuels over the past five years.

Deb McNamara