The Climate Solutions Gap: An Assessment of U.S. Public Pensions’ Investment Strategies

Executive Summary

Climate change is already imposing significant and growing costs on communities, economies, and financial markets, creating major risks for public pensions, whose long-term returns mainly depend on broad market performance. Pension fiduciaries therefore have a responsibility to adopt forward-looking investment strategies that reduce these climate-related financial risks across the entire portfolio.

A central tool available to fiduciaries is investing in credible climate solutions. Directing capital to support decarbonization, resilience, and a just transition helps pensions mitigate climate-related financial risks and positions funds to capture emerging opportunities as global markets evolve.

This report evaluates how major U.S. public pensions are incorporating climate-solutions investing into their investment strategies. It assesses 29 U.S. public pension systems and one permanent fund to determine whether they have:

• Net-zero commitments and credible plans to implement them;
• Climate-solutions investing strategies that prioritize real-economy decarbonization;
• Integration of key climate-solutions categories, including clean energy, nature and biodiversity, climate resilience, and just transition;
• Clear definitions and guardrails for what qualifies as a climate-solutions investment; and
• Governance, reporting, and disclosure practices that enable transparency and accountability.

The findings reveal significant variation and persistent gaps. Only eight of the 30 funds evaluated earned a “strong” or “developing” score for their climate-solutions investing strategy, and even the more advanced systems often lack measurable targets or comprehensive definitions. Most funds still rely on portfolio-emissions metrics rather than approaches that drive real-economy decarbonization, and transparency into climate-solutions holdings remains limited. These findings highlight the gap between growing recognition of climate risks and the decisive investment strategies needed to address them.

Strengthening investment policies, clarifying definitions and guardrails, and improving disclosures will be essential for pensions to protect long-term value and support the climate solutions needed to reduce risk across the economy.

Introduction: Climate Change Threatens Retirement Savings

Climate change is putting the entire economy and millions of people’s retirement savings at severe and growing risk. The impacts are already visible. More frequent and extreme climate-fueled disasters are straining public budgets, disrupting local economies, and driving up the cost of living. In many regions, homes are becoming harder to insure or afford, basic necessities are rising in cost, and many communities are increasingly vulnerable.

Climate change also directly threatens financial security in retirement. Natural disasters are prompting early withdrawals from retirement accounts, eroding savings that would otherwise grow over time. Climate-driven inflation, volatility, and economic disruption are expected to increase these pressures. At the same time, governments may face budget shortfalls from disaster recovery costs, rising borrowing expenses, and climate-related fiscal stress — all of which can affect their ability to meet pension obligations for current and future beneficiaries.

The broader economic consequences could be enormous. A climate-risk analysis of the 30 largest U.S. pension funds — which include most of the systems assessed in this report — found that under a high-warming scenario, expected portfolio returns could fall by nearly 50% by 2040. Economists have projected the global losses could be “comparable to the damage caused by the 1929 Great Depression, but experienced permanently.”

In short, climate change is undermining the financial security of workers and retirees, and threatening the long-term performance of the diversified portfolios that pensions depend on. Protecting retirement savings in a climate-impacted world requires fiduciaries to manage these risks proactively. Public pension benefits are part of workers’ earned compensation, promised in exchange for years or decades of service. Any threat to the stability of those benefits demands rigorous, forward-looking investment strategies that address climate-related financial risks.

Safeguarding retirement savings and strengthening the economy go hand in hand. Prudent management of public pensions today requires investing in credible climate solutions that reduce economy-wide systemic risks, as well as asset-specific physical and transition risks. This report outlines how pensions can meet that responsibility, and assesses whether major U.S. public pension funds are committing to the investments needed to protect long-term value by driving real-economy decarbonization and mitigating climate risks.

Why Pensions Must Prioritize Investing in Climate Solutions

Public pensions are long-term, broadly diversified investors. Their returns depend far more on the performance of the overall economy than on the success or failure of any individual company. Climate change destabilizes the systems that financial markets rely on, creating systemic risks that threaten pension portfolios and cannot be diversified away. This risk intensifies with delayed action and rising emissions.

Climate change also creates asset-specific physical and transition risks that affect particular sectors, geographies, and business models. Extreme weather can impair infrastructure, while changes in policies, markets, and technology can reshape the competitiveness of entire industries. These two forms of climate risk — systemic and asset-specific — compound over time and jeopardize the ability of pensions to deliver promised benefits.

Fulfilling fiduciary duty in this environment requires investment strategies that address these risks directly and proactively. For pensions, that means supporting the conditions for long-term market stability, which includes investing in climate solutions.

Public pensions’ obligations extend decades into the future, requiring them to safeguard the retirement security of workers across generations. That long-term responsibility makes climate change, with its compounding and irreversible impacts, uniquely material. In order to safeguard long-term returns, fiduciary duty requires pensions to identify and manage known climate-related financial risks, and to consider how investment decisions affect current and future beneficiaries.

Because climate change threatens both market-wide and asset-level performance, investing in credible climate solutions is a necessary component of prudent risk management. Doing so is not a values-based practice — it is a financial imperative rooted in protecting the economic conditions that pensions rely on. Fiduciaries must be proactive, since waiting for perfect policy clarity or market conditions exposes long-term portfolios to greater risks and avoidable losses.

Systemic climate risk is driven by real-world emissions; therefore mitigating it requires accelerating real-economy decarbonization at scale. Meeting this challenge will require trillions of dollars in new investment, but will be a far smaller cost than failing to act. Public pensions, with more than $6.5 trillion in assets across the U.S., are among the few institutions with both the long-term horizon and capital base capable of contributing meaningfully to this transition.

Government action and public funding are essential, but insufficient on their own. The scale of the transition means institutional investors, including public pensions, must play a central role. For long-term fiduciaries, investing in decarbonization is not about impact for its own sake; it is a practical strategy to safeguard portfolio value and financial stability.

Where capital flows — toward fossil-fuel expansion or toward low-carbon infrastructure, resilient housing, grid modernization, and other climate solutions — will influence whether systemic climate risk worsens. Major investors shape the transition by providing new financing for projects that expand clean energy and resilience, so fiduciaries must ensure their capital reduces rather than amplifies climate-related risks.

The transition to a low-carbon economy also presents significant opportunities. Sectors enabling decarbonization and resilience are poised for substantial growth, while high-carbon business models face mounting headwinds. Allocating capital in ways that align with these structural shifts is a practical, risk-aware investment strategy.

While crucial progress has been made on financing the low-carbon transition, the gap between what is needed and what is currently being financed remains vast. For pensions with obligations extending decades into the future, delayed investment means greater instability, weaker long-term performance, and potential losses that may never be recovered. 

Some U.S. public pensions have begun integrating climate considerations into their risk frameworks. Yet most still lack an essential element: a clear target to increase investments in climate solutions with the credibility and scale needed to mitigate climate-related financial risks.

Clear strategies and targets matter. They guide investment staff, shape priorities, create accountability, and help ensure that allocations support real-economy decarbonization and resilience rather than making marginal portfolio adjustments that leave underlying risks unaddressed. While many pension portfolios already contain some climate-aligned investments, these exposures are often non-strategic or not guided by explicit climate criteria. Meaningful mitigation of climate risk requires targeted, credible strategies to increase investments in climate solutions across asset classes.

What Climate-Solutions Investing Strategies Should Include

To manage climate-related financial risks and protect long-term value, public pensions need clear, credible strategies to invest in climate solutions. These strategies must reflect the full spectrum of investments needed to mitigate systemic climate risk and asset-specific physical and transition risks.

Based on this framework, this report evaluated whether 29 U.S. public pensions and one permanent fund commit to and pursue the following core elements of climate-solutions investing. These criteria align with the Principles for Climate Solutions Investments (published in September 2025), which provide a high-level framework for identifying credible climate-solutions investments and distinguishing them from activities that greenwash or simply rebrand existing holdings. Ultimately, these practices can help reduce climate risks and strengthen the economic stability that underpins long-term investment performance.

Global investors, including public pensions, are increasingly adopting net-zero commitments, but many remain high-level, vague, and focused on portfolio decarbonization rather than real-world emissions reductions. Portfolio emissions metrics can be useful for analyzing holdings, but they do not indicate whether investments are affecting the real economy.

For diversified asset owners, systemic climate damage is the defining threat to long-term returns. Without a focus on real-economy outcomes, portfolio-emissions goals risk becoming an accounting exercise that does little to mitigate long-term climate risks.

For example, a pension fund can reduce its portfolio emissions by increasing allocations to low-carbon assets that are already widely held. But this does little to help new clean energy projects, resilient infrastructure, or other climate solutions get built at scale to mitigate climate change. Without more capital flowing into those solutions, climate risks will escalate regardless of portfolio metrics.

Net-zero commitments therefore must be paired with explicit strategies to prioritize real-economy decarbonization. Public pensions need strategies that drive real-world emissions reductions by directing new capital toward credible climate solutions across asset classes, rather than relying mainly on shuffling existing holdings.

Clearly articulated targets provide direction and accountability. Broadly diversified portfolios will inevitably hold some “low-carbon” or “climate-aligned” investments, but these non-strategic exposures are not sufficient to drive the low-carbon transition and reduce real-world emissions. 

Targets help ensure capital flows into investments that expand clean energy, resilience, and other solutions, rather than simply shifting exposure within existing markets. Targets also direct fund managers to actively seek out investments that advance decarbonization while still meeting prudent, risk-adjusted return requirements consistent with fiduciary duties.

As part of a robust risk-mitigation strategy, pensions need measurable targets to increase allocations to climate solutions. Doing so ensures that investments are purposeful, accountable, and aligned with long-term portfolio value.

Climate-solutions investing must be grounded in credible, evidence-based criteria. Strong strategies require clear definitions to ensure capital is directed to solutions that genuinely reduce real-world emissions or vulnerability to physical climate risks.

Climate-solutions strategies should not include, among other things: Technologies without demonstrated viability that are unlikely to meaningfully reduce emissions; “transition finance” used to justify continued financing to high-emitting companies without credible, time-bound transition plans; carbon offsets that avoid or delay real emissions reductions; or data centers and technology companies that lack credible, science-based plans to meet energy needs with additional, local renewable energy.

Pension funds can look to the Principles for Climate Solutions Investments and other frameworks to build robust definitions that ensure climate-solutions strategies genuinely reduce climate-related financial risks.

Mitigation investments reduce greenhouse gas emissions and are essential for addressing systemic climate risk. Clean energy is the most familiar category, but the full range of mitigation solutions is much broader. For pensions, mitigation investments help reduce long-term systemic climate risk while also positioning portfolios to benefit from the structural shift toward low-carbon industries.

Effective decarbonization requires capital to flow into clean energy; grid modernization and energy storage; building electrification and efficiency; green affordable housing; low-carbon transportation and public transit; industrial decarbonization such as cement, steel, and chemicals; nature-based sequestration solutions; and enabling technologies that bring lower-carbon alternatives online.

Climate change is already increasing physical risks that threaten asset values and economic stability. Resilience investments strengthen the ability of communities and infrastructure to withstand climate impacts. These investments save lives, reduce economic losses, and bolster public revenues that support jobs and pension systems. For pensions, resilience investments help mitigate physical risks, reduce volatility, and support more stable long-term returns.

Relevant investments include disaster-resilient housing; water, grid, and transportation upgrades; flood control and wildfire mitigation; green and disaster-resilient infrastructure; coastal ecosystem restoration; protective green spaces; sustainable farming practices; and technologies that support resilient supply chains or early warning systems.

A durable transition requires economic and social stability. Disruptions to communities, labor markets, and workers can create economic inequality that translates into systemic financial risks: suppressed consumer demand, regional instability, and slower macroeconomic growth. For pensions, supporting a just transition helps reduce long-term systemic risks and contributes to the economic stability that diversified portfolios rely on.

Climate-solutions investing should therefore include support for high-quality, well-paying, and ideally unionized jobs; investments that expand economic opportunity in regions historically dependent on high-emitting industries; and capital directed toward communities disproportionately harmed by climate impacts or industrial pollution.

Scoring Methodology

This report evaluates whether public pensions have adopted the policies, investment strategies, and governance practices necessary to manage climate-related financial risks. To do so, it assesses each fund against the following core questions:

• Does the fund have a net-zero commitment and a plan to implement it?
• Does the fund have a credible climate-solutions investing strategy that prioritizes real-economy decarbonization?
• Do the fund’s investment strategies cover key categories of climate solutions — including mitigation (clean energy and nature/biodiversity), climate resilience, and just transition?
• Does the fund have clear definitions and guardrails for what qualifies as a climate-solutions investment?
• Does the fund have governance, reporting, and disclosure practices that enable transparency and accountability?

These questions reflect the essential elements of a comprehensive climate-solutions investing approach: clear commitments, defined plans for allocating capital, coverage of core solution categories, and governance structures that support implementation and oversight.

This assessment covers 29 U.S. public pension systems and one permanent fund, collectively representing approximately $3.25 trillion in assets. Three of the funds overseen by the New York City Comptroller (NYCERS, BERS, and TRS) are evaluated together because they share a common climate strategy, targets, and disclosure framework.

All findings are based on publicly available documents, including investment policies, statements of investment beliefs, climate strategies, responsible-investment reports, climate-related webpages, and public announcements. Each fund was then evaluated according to the scoring frameworks described below.

Each scored category uses the same five-tier structure — Strong, Developing, Weak, No Policy, and Anti-ESG — but the specific criteria for each tier differ by category to reflect distinct expectations. Detailed criteria for each category are provided in the accompanying Methodology (Table 1).

Net-zero commitments set portfolio-level emissions-reduction goals, typically measured using carbon-intensity or weighted-emissions metrics; they signal intent but do not show how capital is allocated or whether investments reduce real-world emissions. 

Climate-solutions investing strategies, by contrast, assess whether a fund has a credible plan to direct capital toward climate solutions through time-bound targets, clear definitions and guardrails, and a focus on real-economy decarbonization. Because these categories evaluate different dimensions of climate action, funds may score differently across them.

A comprehensive climate-solutions investing strategy should also encompass key elements of the transition: climate mitigation (clean energy and nature/biodiversity), climate resilience, and just transition. Each carries specific expectations and requires clear definitions and guardrails to ensure credibility.

The assessment includes six scored categories:

• Net-Zero Commitment: Evaluates the presence and credibility of the fund’s commitment to achieving net-zero emissions across its portfolio.
• Climate-Solutions Investing Strategy: Evaluates whether the fund has a credible plan with time-bound targets to allocate capital to climate solutions across asset classes.
• Clean Energy: Evaluates the integration of clean energy investments into the fund’s investment strategy.
• Nature and Biodiversity: Evaluates the integration of nature-based and biodiversity-related investments into the fund’s investment strategy.
• Climate Resilience: Evaluates the integration of investments that strengthen the ability of communities and systems to adapt to climate impacts.
• Just Transition: Evaluates the fund’s support for workers, unions, and communities affected by the transition, guided by clear labor and equity principles.

Governance and transparency practices were assessed using the same five-tier structure — Strong, Developing, Weak, No Policy, and Anti-ESG — with specific criteria tailored to each category. Detailed criteria for each category are provided in the accompanying Methodology (Table 2). The assessment includes three scored categories:

• Governance Oversight: Evaluates how fiduciaries and investment committees oversee climate-related investment strategy and risk management, including the structures and processes in place.
• Progress Reporting: Evaluates the frequency and quality of reporting on progress toward net-zero commitments and climate-solutions investing strategies.
• Climate-Solutions Investment Disclosures: Evaluates the extent of public transparency around the fund’s climate-solutions holdings.

Taken together, these scoring frameworks provide a consistent and comparable basis for evaluating how major U.S. public pensions approach climate-solutions investing. The following section applies these frameworks to assess where the funds are making progress and where significant gaps remain.

Assessment of Major U.S. Pensions’ Approach to Climate-Solutions Investing

Key Takeaways: Policies & Commitments

A small group of funds is beginning to integrate climate-solutions investing into their strategies, but most have a long way to go. Despite growing awareness of climate risk, most funds have yet to adopt clear, proactive investment strategies that direct meaningful capital toward credible climate solutions and avoid greenwashing.

Twenty-four of the 30 funds had no discernible net-zero commitment. Among the remaining six, three received a “developing” score because their commitments lack one or more essential elements, such as a science-based target, Scope 3 emissions coverage, or a clear implementation plan. Only three funds earned a “strong” score for their net-zero commitment: the California Public Employees' Retirement System (CalPERS), three of the funds overseen by the New York City Comptroller (NYCERS, BERS, and TRS, referred to collectively as the NYC funds), and the Oregon Public Employees Retirement Fund (Oregon PERF).

Twenty-two of the 30 funds lacked a defined climate-solutions investing strategy, receiving either a “weak” or “no policy” score in that category. Of the eight that did, four received a “developing” score for lacking time-bound, numeric targets, limiting the strategy to certain asset classes, or failing to prioritize real-economy decarbonization. Only four funds earned a “strong” score on their climate-solutions investing strategy: the Minnesota State Board of Investment (SBI), the NYC funds, the New York State Common Retirement Fund (NYSCRF), and Oregon PERF. 

CalPERS, for example, received a “developing” score for its climate-solutions investing strategy because it focuses on achieving a 50% reduction in portfolio emissions intensity by 2030, which does not necessarily drive real-world emissions reductions. In addition, a separate analysis of what CalPERS has counted toward its 2030 climate-solutions target shows it includes billions of dollars in holdings in some of the world’s largest oil and gas companies and other major emitters. This indicates that CalPERS’ approach lacks strong definitions and guardrails to ensure its investments in “climate solutions” contribute to real-world emissions reductions.

These results highlight that even among funds showing relative leadership, most have only partial or preliminary strategies for investing in climate solutions. Few have adopted the comprehensive, actionable approaches needed to drive real-world emissions reductions and mitigate systemic climate risk.

While a growing number of public pensions are actively pursuing investments in climate solutions, their strategies vary significantly in clarity and rigor. Only five of the 30 systems have established explicit targets for allocating investments to climate solutions: CalPERS, Minnesota SBI, the NYC funds, New York SCRF, and Oregon PERF. 

Several others — Los Angeles County Employees Retirement Association (LACERA), New Mexico State Investment Council (NMSIC), and Seattle City Employees’ Retirement System (SCERS) — have disclosed strategies for climate-solution investments, but lack measurable targets to guide or scale these investments.

Other pensions disclose holdings that may qualify as climate solutions, but these exposures appear to result from broad portfolio diversification rather than from a deliberate, targeted strategy. These include the California State Teachers' Retirement System (CalSTRS), Connecticut Retirement Plans and Trust Funds (CRPTF), New Jersey State Investment Council (NJSIC), and Vermont Pension Investment Committee (VPIC). Without a stated strategy or target, there is no clear indication these pensions are proactively making new investments in climate solutions.

Among the five funds with climate-solutions investment targets, the scale and share of asset allocations vary substantially (AUM figures reflect 2025 values):

• CalPERS: $100 billion by 2030 (~18% of AUM)
• NYC funds: $50 billion by 2035 (~18% of AUM)
• New York SCRF: $40 billion by 2035 (~15% of AUM)
• Oregon PERF: $6 billion by 2035 (~6% of AUM)
• Minnesota SBI: $1 billion by 2029 (~0.75% of AUM)

These differences reflect varying levels of ambition and different views on the role of climate-solutions investing in managing systemic climate risk and capturing long-term opportunities. But scale alone does not determine credibility. What counts toward these targets varies significantly in quality.

Some funds include investments that simply involve buying existing assets, which does not provide new financing for climate solutions, and therefore does not reduce real-world emissions or systemic climate risk. Others count “low-carbon” or “climate-aligned” investments that may consist primarily of already decarbonized companies or low-emitting sectors, where additional real-world impact is limited.

Several funds also include investments that raise concerns about misclassification or greenwashing. For example, CalPERS counts certain public-market holdings in major oil and gas companies toward its $100 billion climate-solutions target, and the NYC funds include carbon capture and storage (CCS), a technology whose deployment and emissions-reduction outcomes remain uncertain without strong guardrails.

These examples underscore the importance of clear definitions and guardrails. Without consistent criteria — such as those outlined in the Principles for Climate Solutions Investments — climate-solutions targets can overstate their contribution to decarbonization and risk reduction, weakening both their credibility and effectiveness.

The assessment reveals a pronounced skew in how funds are approaching climate-solutions investing. Encouragingly, ten funds earned “developing” scores in the clean energy category, though none received a “strong” score. These include CalPERS, CalSTRS, Los Angeles CERA, Minnesota SBI, New Mexico SIC, the NYC funds, New York SCRF, Oregon PERF, Seattle CERS, and Vermont PIC.

However, funds’ strategies notably drop off in other categories that are also crucial for mitigating climate risks. No fund received a “strong” score in any other categories, and few received even “developing” scores:

• Nature and Biodiversity: Nine funds received “weak” scores, and the vast majority had no policy.
• Just Transition: Only three funds — CalPERS, NYSCRF, and the Maryland State Retirement and Pension System (MSRPS) — received “developing” scores; six received “weak” scores, and the rest had no policy or anti-ESG restrictions.
• Climate Resilience: Only two funds — CalPERS and the NYC funds — received “developing” scores, four received “weak” scores, and the rest had no policy.

This distribution suggests that even the more advanced funds continue to treat climate solutions primarily as an energy-sector issue. Clean energy investments are vital, but mitigation is needed across many sectors, along with investments in climate resilience and just-transition strategies. The analysis shows that pensions need a more comprehensive approach to invest in climate solutions to effectively address climate-related financial risks.

Key Takeaways: Governance & Disclosures

The assessment shows that board-level oversight of climate-related investment strategy is becoming more common, but remains inconsistent. Many funds appear to still be in the early stages of treating climate risk as a core investment governance issue rather than a peripheral consideration. Weak oversight structures make it difficult for fiduciaries to fulfill their duty to identify and manage climate-related financial risks, thus increasing the likelihood that material risks will go unaddressed.

About two-thirds of the funds received at least some score (“strong”, “developing”, or “weak”) for board-level climate oversight. Eight funds received “strong” scores, reflecting regular board engagement and clearer assignment of responsibility for climate-related investing strategies: CalPERS, CalSTRS, Los Angeles CERA, Maine PERS, Washington SIB, Seattle CERS, the NYC funds, and New York SCRF.

Several pension funds — Colorado PERA, Delaware PERS, Hawaii ERS, Illinois TRS, and NYSTRS — received “weak” scores, indicating that their boards either lack clear responsibilities for ESG or climate-related oversight, or only have broad policies allowing ESG considerations without requiring them. Several funds have no policy at all for climate governance, while the selected systems in Florida (SBA), Texas (ERS), and North Carolina (NCRS) are constrained on climate risk oversight by anti-ESG laws.

In several cases (notably Massachusetts PRIM and Vermont PIC), climate-related oversight is confined largely to stewardship and proxy voting. While these are important tools, they are insufficient on their own to mitigate systemic climate risk and protect long-term portfolio value.

Regular progress reporting is essential for credible climate-strategy implementation. It enables fiduciaries, beneficiaries, and the public to understand whether commitments are being met and whether climate-related financial risks are being effectively managed.

Only four pension systems scored “strong” on climate progress reporting: CalPERS, CalSTRS, the NYC funds, and NYSCRF. A broader set of funds publishes some climate-related updates, but these were scored “developing” or “weak” because they provide limited detail on climate-solutions investments or lack consistency over time. The remaining funds provide no climate progress reporting at all.

Even among funds with better reporting, disclosures about climate-solutions investments are often insufficiently detailed to evaluate strategy effectiveness. The lack of information on what investments count as climate solutions, whether allocations are increasing, and whether they meet credible criteria — such as those outlined in the Principles for Climate Solutions Investments — limits the ability to assess whether funds are making meaningful progress toward mitigating climate-related financial risks.

Holdings-level disclosures are essential for determining whether pension funds are directing capital toward credible climate solutions and avoiding investments that may undermine climate goals or increase portfolio risk.

Across the sample, none of the funds scored “strong” on climate-solutions holdings disclosures. Nine funds scored “developing” because they offer only partial visibility into relevant holdings: Oregon PERF, Washington SIB, New York STRS, Connecticut RPTF, Delaware PERS, Hawaii ERS, CalPERS, CalSTRS, and Vermont PIC. Many others provide only “weak” disclosures or none at all.

Where holdings disclosures do exist, they are often incomplete, inconsistent over time, or limited to certain asset classes (typically public equities). Most funds disclose standard holdings more thoroughly than climate-solutions holdings, and information on private-market climate investments is particularly scarce. Without clear, comprehensive data, it is difficult to assess whether reported climate-solutions investments meet credible definitions and guardrails or whether some may be misclassified or marginal.

This lack of transparency makes it difficult for beneficiaries, policymakers, and the public to verify whether funds are meaningfully directing capital to credible climate solutions, or merely counting non-strategic or misclassified investments toward their stated strategies or targets.

Recommendations to Strengthen Pensions’ Climate-Solutions Investing Strategies 

Public pensions face growing systemic and asset-specific climate risks that threaten long-term returns and beneficiaries’ retirement security. This assessment shows that while a few funds are beginning to adopt climate-solutions investing strategies, most have not yet developed clear targets, credible definitions, or governance structures that align capital with efforts to mitigate climate-related financial risks.

Pension fiduciaries should take the following steps to strengthen climate-solutions investing and manage climate-related financial risks. All are grounded in the findings of this report and form the core components of a credible climate-solutions investing strategy that pensions should implement to meaningfully address climate-related financial risks.

Pensions should ground their climate-risk mitigation approach in strategies that prioritize real-economy decarbonization rather than portfolio decarbonization. Capital allocation and investment decisions play a direct role in shaping the pace and direction of the economic transition, and investing in climate solutions must be a central pillar of that strategy. 

For broadly diversified asset owners, reducing real-world emissions is essential to mitigating systemic climate risk that cannot be diversified away. Not all low-carbon investments or portfolio-based emissions metrics translate into real-economy impact. Credible climate-solutions investments finance projects and companies that drive measurable reductions in real-world emissions, even if portfolio emissions metrics rise in the short term.

To manage climate-related financial risks, pension funds should adopt investment strategies that address both systemic climate risk and asset-specific physical and transition risks. These strategies should include time-bound, measurable targets to increase investments in credible climate solutions across mitigation, resilience, and a just transition. Targets should apply across major asset classes and emphasize directing new capital toward climate solutions, rather than simply trading existing equities or other securities on secondary markets.

Most funds in this assessment lack clear targets. Clear, well-defined climate-solutions targets guide investment teams, external managers, and boards toward forward-looking decisions that reduce risk and capture opportunities created by the transition to a lower-carbon, more resilient economy. Climate-solutions strategies should be integrated into existing investment frameworks, reflecting that long-term fiduciary duty increasingly requires aligning capital with investments that mitigate climate-related financial risks.

A strategy is only as strong as the standards used to define qualifying investments. To ensure capital is directed toward investments that truly mitigate systemic and asset-specific risks, pension funds must adopt specific, credible criteria for what counts as a climate solution and apply guardrails to prevent misclassification. Pension fiduciaries therefore should:

• Prioritize investments that deliver measurable reductions in real-world emissions or strengthen community resilience;
• Avoid counting secondary-market holdings that do not represent new or additional financing;
• Scrutinize technologies whose deployment pathways or emissions-reduction outcomes remain uncertain, such as carbon capture and storage (CCS); and
• Count investments in high-emitting companies only when they are supported by credible, time-bound transition plans aligned with real-economy decarbonization.

Examples cited in this report — such as CalPERS counting certain oil and gas holdings toward its climate-solutions target or the NYC funds’ inclusion of CCS — illustrate how inconsistent definitions can weaken the credibility and effectiveness of climate-solutions strategies. Pension funds can look to the Principles for Climate Solutions Investments and other frameworks for guidance on establishing robust definitions that ensure climate-solutions strategies genuinely reduce climate-related financial risks.

To ensure that climate-solutions investments genuinely support a just transition, pensions should complement the practices above with strong and clearly articulated labor and just transition principles. Robust labor principles support the creation of high-quality, well-paying jobs and protect workers affected by the transition. Just transition principles help direct capital to communities and regions most vulnerable to climate and economic disruption. Together, these principles provide guardrails that align investment decisions with economic resilience, mitigate transition-related volatility, and support the broad-based stability that long-term portfolio performance depends on.

Effective climate-solutions investing requires strong governance and transparent reporting. Many funds in this assessment lack dedicated oversight structures or provide limited visibility into their holdings, making it difficult for beneficiaries, policymakers, and boards to assess implementation and impact. Pension boards and trustees should:

• Assign clear responsibility for climate-related investment strategy and oversight;
• Integrate climate-solutions investing strategies into regular board agendas and investment committee discussions;
• Require annual or semi-annual progress reports detailing allocations to climate-solutions investments, how those investments meet credibility criteria, and how climate-related financial risks are being managed; and
• Improve holdings-level transparency — including, where feasible, private-market holdings — to enable meaningful oversight and reduce the risk of greenwashing.

A small group of funds — including CalPERS, CalSTRS, the NYC funds, and NYSCRF — offer examples of more robust governance and reporting practices. Broadening these practices across more funds will be essential to aligning pension investments with long-term risk management.

Pensions cannot meet their climate goals in isolation. To effectively expand investments in credible climate solutions, they must work closely with fund managers to identify high-quality opportunities and, where necessary, develop investment products that do not yet exist. In many cases, this will require fund managers to create or adopt new investment vehicles, especially in asset classes where existing offerings lack robust decarbonization criteria. Clear direction from pensions can catalyze the development of investment products aligned with real-economy decarbonization and resilience, while ensuring that managers seek opportunities and build products that meet these standards.

Conclusion

Public pensions play an essential role in safeguarding the retirement security of millions of workers. Yet climate change poses systemic and asset-specific financial risks that cannot be managed through traditional investment approaches alone. Most funds analyzed in this report remain in the early stages of developing credible climate-solutions investing strategies, with only eight earning a “strong” or “developing” score.

Delaying action will increase long-term financial risks and narrow the window for effective risk mitigation. By adopting clear climate-solutions targets, applying credible definitions and guardrails, and strengthening governance and disclosure practices, pension funds can better protect long-term portfolio value while supporting a more resilient and sustainable economy that beneficiaries depend on.

Acknowledgments

The report authors would like to thank the following Sierra Club colleagues for their support, commentary, and guidance: Allie Lindstrom, Cara Fogler, Ginny Roscamp, Jen Ballou, Lisa Reiser, and Mahima Dave.

The report authors would additionally like to thank the following individuals for their commentary and insight on the report methodology and the Principles for Climate Solutions Investments: Alex Martin, Crystal Zermeno, Eric Lerner, Ernesto Archila, Francisco Garcia, Gaurav Madan, Jason Disterhoft, Jeff Conant, Jessica Garcia, Jono Shaffer, Laure Philippon, Natalia Renta, Paul Rissman, Rémi Hermant, Renaye Manley, Sara Murphy, and Xavier Lerin.