Protect Marylanders’ nest eggs from climate change, give science (several) seats at the table

The smokestack of the Wheelabrator incinerator, a waste recycling facility that converts trash into energy. Capital News Service photo by Joe Ryan.

The Maryland pension system earlier this year issued its first report on efforts to protect state public pensions from the risks of climate change. It is also taking initial steps toward establishing an advisory panel of climate risk experts, as contemplated by Maryland’s 2022 Investment Climate Risk law , to ensure that pension investment decisions are informed by the “most current science and data available.”

This is great news. But for Maryland to be the climate leader that it can and should be, it is vital that the advisory panel includes experts in climate science , that its advice is given serious weight and that it gets to work fast.

More than 415,000 Marylanders – teachers, nurses, and other public employees – rely for their retirement and other benefits on the Maryland State Retirement and Pension System, which supervises a multbillion-dollar investment portfolio.

Climate change poses a serious and fast-growing threat to these investments. Global demand for oil and gas is expected to peak by 2030 , putting investments in these companies at risk. Meanwhile, governments around the world (including Maryland) are adopting emissions-reduction policies that will speed this trend. Indeed, fossil fuel sector stocks have performed at the bottom of the market for seven of the last 10 years and made a loss last year.

More broadly, as articulated in a December 2023 op-ed by Maryland Comptroller Brooke Lierman, retirement investments in a variety of industries are threatened by extreme weather events and changes in temperature, sea level and precipitation causing property damage, crop failures and supply chain disruptions.

It’s crazy that our banks and our pensions are investing in fossil fuel, when these are the very things that are jeopardizing the future that we are saving for.

– David Attenborough, 'A Life on Our Planet' (2023)

Evaluating and mitigating these risks, as Maryland law requires, is no easy task. Adding to the difficulty, time is of the essence: 2023 was the hottest year on record, and it is more likely than not that 2024 will surpass that record.

For this task, traditional investment risk approaches fall short. For one example, they often focus narrowly on the internal carbon footprint of companies or sectors (e.g., Do an insurance company’s offices have high emissions?), while ignoring their larger impact (e.g., Does the company have high exposure to flood risk? Is it insuring new fossil fuel extraction projects?)

These challenges are reflected in the Maryland pension system’s recent report, where traditional modes of analysis resulted in at times absurd conclusions: The report predicts only a 0.2% annual decline in the fund’s returns if global temperatures increase by 3℃ above pre-industrial levels.

This represents a jarring disconnect with science. The last time the world was that hot was 3 million years ago, when sea levels were 10-20 meters higher than today. When Ellicott City, Maryland saw two “1,000-year” floods in a period of two years, resulting in millions of dollars of reduced economic activity, income, and government revenues, Marylanders got just a glimpse of the economic devastation that even a small increase in warming can cause.

That conclusion is also not in line with other climate risk studies. For example, a 2022 study published in the British Actuarial Journal found that a failed energy transition could shrink worldwide GDP 73% by the year 2100 compared to a baseline scenario without climate change. This scenario should be of grave concern, as many of Maryland’s young workers will still be receiving pensions into the final decades of this century.

We commend Maryland’s pension system for the steps it has taken thus far in its challenging task, including steps toward establishing an advisory panel. But we also urge that — in order to prevent such important risks from being overlooked — this panel be weighted toward experts in climate science and the real world risks posed by the climate crisis, and that it be taken seriously and consulted regularly.

To get this right, Maryland must forge a new path. This may include working with other pension systems to drive market demand for better analyses. But it must focus first on recruiting an advisory panel able to complement the system’s existing investment expertise by providing the “most current science and data available.”

This approach will align the pension system with the state’s overall emissions goals, protect Marylanders’ retirement investments and the future they are saving for, and make Maryland the leader it ought to be.

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