Climate-Related Proxy Voting in US Pension Funds: A Changing Landscape
Untended climate risks in U.S. state pension funds jeopardize billions of dollars at risk
In the ever-evolving world of investment, the focus on climate-related proxy voting among US state and local pension systems is undergoing significant changes. This transformation is taking place against the backdrop of a growing number of anti-ESG (Environmental, Social, and Governance) legislation.
Blue States Leading the Charge
Blue states are at the forefront of this movement, with a stronger emphasis on climate-related proxy voting. Pension funds in these states often align their investment strategies with long-term sustainability goals, mirroring the approach of the United Nations Joint Staff Pension Fund (UNJSPF), which actively promotes climate accountability and sustainable corporate behavior through proxy voting [3]. However, the increasing presence of anti-ESG legislation in various states poses uncertainty and potential legal challenges for these systems.
Performance Evaluation
Assessing the performance of pension funds that focus on climate-related proxy voting can be challenging. Historically, ESG-focused investments have shown mixed results, with some studies indicating that they can achieve similar or slightly better returns than non-ESG investments over the long term. However, the current drop in support for environmental and social proposals, as seen in the 2025 proxy season, suggests a shift in investor sentiment [1]. If pension funds are restricted from considering critical climate risks in their investment strategies due to anti-ESG legislation, they may face underperformance.
Challenges for Blue States
Blue states face challenges from anti-ESG legislation, which aims to limit the consideration of climate risk in investment decisions. This legislation often requires pension funds to demonstrate that their investment practices align with traditional fiduciary standards, focusing solely on shareholder value [2][4]. As a result, blue states may need to navigate these legal restrictions while maintaining their commitment to sustainability goals.
Impact of Anti-ESG Legislation
Anti-ESG legislation, such as Texas' SB 13 and SB 2337, restricts the ability of state entities to invest in companies that boycott fossil fuels and may limit the role of proxy advisors in promoting climate-related goals. This legislation has faced legal challenges, and its impact on the performance of pension funds remains uncertain as the legal outcomes are pending [4].
Report Findings
A new report by Sierra Club and Stand.earth finds that two-thirds of analyzed pension systems received D or F grades for managing climate-related financial risks [2]. States with anti-ESG legislation, such as Arizona, Texas, and Florida, scored poorly due to policies restricting climate-related considerations in proxy voting. On the other hand, the report identifies New York State Common Retirement Fund, Massachusetts Pension Reserves Investment Management (MassPRIM), and CalPERS as strong performers, with A or B grades [1].
The Power of Pension Funds
The report underscores the significant investor power that pension funds possess to defend climate and working-class communities. By updating their proxy voting guidelines and voting in line with climate and human rights, pension funds can exert influence and contribute to a more sustainable future [2]. If emissions are not addressed, these pension systems risk losing approximately half of their equity holdings [2].
In conclusion, the current status of climate-related proxy voting among US state and local pension systems is complex. While some states prioritize sustainability, others face significant legal and regulatory pressures from anti-ESG legislation. The performance of these funds under such conditions will depend on their ability to balance fiduciary duties with sustainability goals in an evolving legal landscape.
The alignment of environmental-science principles with the investment strategies of pension funds in blue states is mirrored by the United Nations Joint Staff Pension Fund (UNJSPF), which promotes climate accountability and sustainable corporate behavior through proxy voting. Pension funds that focus on climate-related proxy voting may face underperformance if restricted from considering critical climate risks in their investment strategies due to anti-ESG legislation.
Despite facing challenges from anti-ESG legislation, blue states need to navigate these legal restrictions while maintaining their commitment to sustainability goals and exerting influence through their proxy voting for a more sustainable future, as demonstrated by the high-performing New York State Common Retirement Fund, Massachusetts Pension Reserves Investment Management, and CalPERS.
