State launches panel to study climate implications of pension system investments

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“I am confident that if used correctly by our system, the expertise we will bring in through this new council will allow for innovative investments that make our system more profitable with less risk over the long term,” she said.

The new Climate Advisory Panel will be appointed by the SRPS board and consist of at least three outside experts in the analysis of climate change risk who are experienced in climate science or climate economics. Other panel members are expected to have diverse backgrounds, including individuals with access to current climate study data and experience in the fields of climate studies or research, investment management or research that integrates climate risks and opportunities into the investment decision-making process, or expertise in broad climate change policy.

“By establishing this advisory panel, we can leverage outside expertise and work collaboratively as we establish a path to a long-term sustainable portfolio consistent with our fiduciary duties,” State Treasurer Dereck E. Davis (D), who chairs the SRPS Board of Trustees, said in a statement.

Lierman said state officials have been meeting in recent months with leaders of climate investment advisory committees in other states, and found the model being used in Massachusetts, whose pension board has a Stewardship and Sustainability Committee, as the most promising to replicate.

While states for decades invested in fossil fuel companies, there has been a growing consensus among fund managers in recent years that those investments can be increasingly dicey, as oil and gas conglomerates face growing scrutiny and legal risk from their role in causing environmental degradation across the globe.

A late 2021 study conducted for Maryland environmental groups found that the state pension and retirement system was increasingly losing return on its investments in 162 large publicly traded oil and coal companies. The study calculated that if the state had divested from these 162 companies beginning in 2010, the pension system portfolio would have seen gains of 143.77% instead of the growth of 128.58% it did experience with the fossil fuel investments.

In all, the Maryland pension and retirement system has an investment portfolio valued at about $70 billion. An SRPS spokesperson could not immediately say Tuesday how much is invested in fossil fuel companies.

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Maine in 2021 became the first state where lawmakers directed its pension and retirement system to divest from fossil fuels, by 2026. But retirement system consultants have warned that the law could result in $565 million in losses due to transaction costs if the state sells its fossil fuel holdings, according to a recent article in E&E News.

Half a dozen other liberal states have made tweaks to their pension programs in recent years to minimize investments in fossil fuel companies, but have not fully divested, E&E News reported.

The SRPS is accepting letters of interest from candidates interested in serving on the Climate Advisory Panel. The agency’s executive director, Martin Noven, and Chief Investment Officer Andrew Palmer will recommend a list of qualified candidates to Davis, the board’s chair, and the panel will be selected with a vote from the board trustees.

Those interested in serving on the panel can email the Maryland State Retirement and Pension System at [email protected].

“Maryland serves as a global leader in pursuing investment opportunities and mitigating climate change-related investment risk,” Noven said in a statement Tuesday. “The actions taken today by our agency and Board of Trustees will ensure long-term value for our members, their families and their financial security.”