Colorado House Committee Rejects Proposal to Analyze Climate-Related Risks in State Employee Retirement Fund

A bill that would have mandated that the Colorado Public Employees’ Retirement Association (PERA) Board of Trustees analyze climate-related financial risk among the pension’s held assets failed to move out of the State House Finance Committee Monday.

The bill (HB-1270) was sponsored by Representatives Emily Sirota and Chris Hansen, both Democrats who represent districts in Denver.  It would require that PERA hire an outside consultant with “experience in public sector pension plans” to perform an analysis of the “climate-related financial risk to the total assets of PERA (fund).”

The report would have also included an analysis of the portfolio’s exposure to long-term risk and required 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.”

The PERA board would report the findings to the General Assembly once completed.

After hearing witness testimony for about one hour, the bill was defeated by a vote of 10-1.  By a subsequent 9-2 vote, the Finance Committee voted to postpone the bill indefinitely, meaning it will not be revisited during the current legislative session.

While many of the bill’s supporters asserted that climate change will impact the value of fossil fuel holdings and investments in tangential industries, PERA leadership argued that the fund regularly assesses risk when making investment decisions.

“From the PERA perspective and the PERA Board perspective, this report is not needed. PERA does this work already,” said Executive Director Ron Baker. “This break, this separation of duties having the investment program independent of the politics has served the state of Colorado well for many years. This is a change – where this outside group can make recommendations of how the PERA board is to invest money to address an issue that has not yet been defined clearly as to research of the whole portfolio.”

PERA Chief Investment Officer Amy McGarrity echoed Baker’s remarks and said that the fund is already undertaking much of what HB-1270 would require an outside party to analyze.

“While we would get some potential views on today’s – or probably yesterday’s – investments in the portfolio, I don’t know that it would be any more than we already have…[W]hen we pitch new stocks in the stock portfolio, we go through that analysis. Not only does it incorporate carbon-risk, it talks about governance, it talks about outside directors, talks about treatment of employees – all sorts of aspects to the variety of companies that we invest in.”

McGarrity also warned that much of the insight derived by such an exercise may be rendered out-of-date by the time the report is completed since investment strategies can, and do, frequently change.

“I think that the outcome of the analysis would be relatively limited in that, what we could take from it, is just limited. It’s either dated or its generalized information, or we already know it,” McGarrity said.

Members from both sides of the aisle expressed uncertainty about the need for such a study and concern about the possible burden it would put on PERA.  Just last year, the General Assembly endured a difficult legislative process to overhaul the pension fund to stabilize its finances and ensure solvency in the years going forward.  It appeared that experience was fresh in the minds of several lawmakers.

“I think it was a year ago, when this legislature was working so hard to honor the interests of PERA retirees and beneficiaries in terms of trying to find a path to fully fund this, cut costs so that we are not increasing more PERA contributions from the beneficiaries and other governmental entities that are charged with funding this pension fund. So, I have a very hard time now just a year later asking PERA to spend another $200,000 on something that I don’t hear from the testimony is really materially different from what PERA is already doing,” said Rep. Shannon Bird, a Democrat who represents Adams County.

Rep. Matt Gray, a Democrat from Boulder County, said he did not want to legislate how PERA invests the fund, especially if such an act could diminish future returns.

“…[W]e just went through the process of being on the razor’s edge of how we needed to set benefits and how we needed to reduce benefits and increase contributions for PERA members. And until we have a little bit more stability, knowing that we’re on a financial footing, I’m really hesitant to do things that would take more money out of that pot,” Rep. Gray said.

According to the bill’s fiscal note, there would be an expected cost to PERA of $200,000 to retain an outside organization to conduct the study as mandated in the bill’s language.  The fiscal note also anticipates that extra time will need to be dedicated by PERA staff.

“The bill will also increase PERA’s workload to administer the competitive solicitation and facilitate the study. These costs will be borne by the divisional trust funds of PERA,” read the fiscal note.

Last year, 350.org initiated a letter writing campaign to urge PERA’s board to rid the pension of fossil fuel investments, according to the Denver Business Journal. A report by economists from the firm Compass Lexecon found doing so would cost PERA tens of millions of dollars annually because of the sector’s “strong diversification benefit” to a portfolio.  The study was funded by the Independent Petroleum Association of America.

PERA officials told the Denver Business Journal it had no plans to consider a divestment from fossil fuels in a response to an inquiry about 350.org’s campaign.

In 2007, PERA’s board adopted a policy that investments would be based solely on financial considerations for the benefit of members and would not be made with respect to political aims.