As the climate crisis deepens, fossil fuel companies show no signs of slowing down their polluting projects. But they can’t do it without help from big investors that finance these projects, including public pensions and state treasuries.
Public pensions and state treasuries are managed by state and local officials who are accountable to pensioners and taxpayers. These fund managers have an obligation to protect workers’ savings for the long term, but too often, they’re focused on short-term returns and fail to act on the growing threat that climate change poses to these investments.
This needs to change — and one of the most important steps that pensions and treasuries can do is stop providing new financing to the most climate-destructive companies and start investing more money into climate solutions and local communities.
Take action: Send a message to your state’s public pension fund to stop the flow of money supporting fossil fuel expansion.
The Fossil Fuel Industry Depends on Debt Financing
The science is clear: the climate crisis is driven primarily by the production and combustion of fossil fuels, and continued expansion of fossil fuel infrastructure will drive us further down the path of climate destruction. But despite clear calls from leading energy experts to stop fossil fuel expansion, companies are still exploring and developing new oil, gas, and coal projects.
Most of these projects would not be possible without the enormous amounts of financing that fossil fuel and energy companies regularly receive from banks and investors. To expand their operations, dirty energy companies have typically raised money by accessing debt financing, mainly by receiving loans from banks and issuing bonds to investors.
This financial support enables fossil fuel companies to drill, frack, and mine for more fossil fuels, and build more pipelines, refineries, export terminals, and other polluting infrastructure. These types of projects exacerbate the climate crisis, release toxic pollution into local communities, and keep our economy tied to dangerous and outdated forms of energy, rather than accelerating the transition to clean energy and low-carbon technologies.
Stopping the flow of money from banks and investors to fossil fuel companies is critical to stopping the worst effects of climate change.
Bonds: A Critical Lifeline for The Fossil Fuel Industry
One of the key ways that fossil fuel companies raise money is through the sale of bonds to global investors. A bond works a lot like a loan, but instead of getting money from one or more banks, a company effectively gets many smaller loans from hundreds or thousands of investors.
When an investor buys a corporate bond, they get paid back by the company by the date the bond matures, along with regular interest. In exchange, the company selling the bond gets immediate access to money to use on new projects and existing operations.
Fossil fuel companies can raise billions of dollars through bond sales, which can be used to fund their ongoing operations and to pursue building new projects like pipelines, facilities, or oil wells.
Often, bonds are completely unrestricted, meaning that the investors buying the bonds can’t put any stipulations on where their money goes. And even if bonds are earmarked for specific purposes, like green bonds designated for clean energy projects, buying them can free up other company resources for new fossil fuel projects, as well.
Unless companies have committed to phase out fossil fuel expansion, any money invested in these companies could help expand fossil fuel activities, either directly or indirectly.
Bonds are increasingly important for fossil fuel financing, as fossil fuel companies are relying more and more on bonds, instead of bank loans, to raise money.
This means that institutional investors like public pensions and state treasuries are playing an important and growing role in the energy financing ecosystem. To halt the expansion of fossil fuels, investors must stop purchasing bonds from companies that are increasing fossil fuel production and building new dirty energy infrastructure.
The Role of Public Pensions and State Treasuries in Managing Workers’ Savings for the Long Term
Public pensions and state treasuries play a crucial role in managing taxpayer money and public sector workers’ savings at the state and local level. They invest funds to support state budgets, fund essential public services, help families save for college, and oversee the retirement accounts of public employees.
As major players in the investment market, public pensions and state treasuries invest trillions of dollars each year. This money comes from our tax dollars and from the retirement savings of public employees. The investment choices of public pensions and state treasuries not only respond to market trends but also shape them. These investment decisions influence whether we see increased funding for clean energy initiatives or continued investment in fossil fuel projects.
In other words, our tax dollars should be invested in ways that both grow peoples’ retirement savings and prioritize our collective future and well-being — not fund dirty energy projects that exacerbate the climate crisis and put retirement savings at risk.
A Call to Action for Public Pensions and State Treasuries to Invest in a Sustainable Future
As the climate crisis worsens, it is more important than ever for public pensions and state treasuries to adopt robust climate policies that steer investments away from fossil fuels and other major emitters, and increase funding for climate solutions that help protect their beneficiaries' retirement savings.
Research shows that failing to address climate change could lead to significant negative consequences for both the economy and investment portfolios. Without doing more to stop the climate crisis, global economic output could drop as much as 25% in the next two decades, and stock markets could lose up to 50% of their valuation by mid-century. Market crashes, like in 2008, have long-lasting impacts on everyday people, even when the market recovers relatively quickly. Climate change, however, presents long-term market challenges that will both have long-lasting impacts on everyday people and prevent the economy from bouncing back.
Public pensions and state treasuries should align their investments with a sustainable future in a number of ways.
One of the key ways we can stop the pipeline of money flowing from public pensions and state treasuries to fossil fuel companies is to call on them to stop buying new bonds from fossil fuel companies and other high-emitting companies that refuse to transition their businesses.
Since bond financing is increasingly a critical source of new capital for fossil fuel companies, public pensions and state treasurers can stop fossil fuel expansion by refusing to buy bonds from fossil fuel companies expanding production and building new dirty infrastructure.
To better align their investments with a sustainable future, pensions and treasuries must take the following steps:
- Stop buying bonds from companies expanding fossil fuel production and infrastructure;
- Phase out existing bond holdings in companies expanding fossil fuel production and infrastructure;
- Increase transparency by publicly disclosing total investments in fossil fuel companies, including reporting their ratio of holdings in dirty fuels vs clean energy;
- Develop and implement a climate action plan that reduces investments in polluting companies that refuse to decarbonize, and that increases investments in climate solutions; and
- Incorporate strong principles on climate, biodiversity, just transition, and other climate justice issues into investment strategies.
What You Can Do
Public pensions and state treasuries don’t have to be part of the problem, they can be part of the solution.
By investing more in climate solutions and less in polluting companies, public funds can help stop the flow of money enabling toxic pollution and climate chaos while investing in a more sustainable economy that helps protect workers’ savings for the long term.