TSP Can Do More to Assess Financial Risk of Climate Change, Watchdog Finds:
The GAO calls on the federal government’s 401(k) Federal Reform Program to further assess participants’ exposure to climate change risks in the coming year.
Last week, the federal oversight agency reported that the federal government’s 401(k) retirement savings program needs to do more to assess the exposure of federal workers and retirees to financial risks associated with climate change.
In a report commissioned by Sens.
Maggie Hassan, DNH. and Jeff Merkley, D-Ore., the government’s accountability office, examined the Thrift Savings Plan’s approach to climate change in relation to some contributions and institutions from other countries. The watchdog concluded that while the TSP is more limited by law than comparable government pension plans in the way it manages participants’ investments, there are still some options.
The Federal Board for Retirement Thrift Investment Board reviews its investment policy every five years. The most recent assessment, conducted in 2017, concluded that the current offering from the TSP was adequate and that no environmental, social, and management (ESG) resources were required.
But the GAO noted that the Federal Reserve warned last year that the risks of climate change “couldn’t adequately reflect current asset prices” and that the financial risks associated with climate change permeate much of the global economy.
A particular concern with retirement plans, such as TSP’s investment in passively managed index market funds, a research firm reports, is that nearly 60% of companies in the S&P 500 index have high-risk assets. Climate change since November 2019. Written. the deputy. GAO “The data analyst also noted that S&P 500 companies face transition risks in the form of carbon costs that make up about 40% of their revenue in a mild climate change scenario.”
The effects of physical climate change refer to risks associated with extreme weather events such as floods and droughts, while transition risks are associated with policy changes to reduce fossil fuel use and other greenhouse gas emissions.
The GAO has recognized that, unlike pension fund managers in the UK and Sweden
they can take active measures, such as proxy voting and blacklisting companies that do not comply with the Paris Climate Agreement, to encourage participants to protect the associated financial risks. the climate. the TSP must be passively managed and linked to the main market indices. However, the Observatory noted that in the past the management of the TSP has been more active and made changes to improve the offering to participants, leading to the creation of S, I, and L funds.
“FRTIB has already taken steps to change the design of the TSP plan to address the investment risks identified by previous assessments,” the GAO wrote. “In the early 1990s, FRTIB revised its investment policy and identified the asset classes that are missing from TSP’s investment mix, based on factors such as diversification, risk and return, costs, and operations. He asked FRTIB to add two new funds: one for international stocks (Fund I) and one for small and medium US stocks (Fund S).