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GAO: Climate change weighs on TSP

By the late 1980s, a federal employee—NASA scientist James Hansen—became one of the leading public voices in America sounding the alarm on the dangers of climate change. 

Fast forward just over three decades, and among the tidal wave of reports on the phenomenon that followed comes a Government Accountability Office assessment which, like Hansen’s warning, might attract the attention of fellow feds: climate change poses a real threat to the value of federal retirement funds—particularly the TSP. 

“Climate change is expected to affect financial markets over time,” the report warns. “For example, transitioning to a low-carbon economy could reduce the financial performance of companies that emit greenhouse gases. This could pose risks for retirement plans invested in such companies—including the Thrift Savings Plan for federal workers.”

How so? Stakeholders and experts consulted by GAO for the report cite “climate-related events, from natural disasters to changes in government policy, [that] are expected to impact much of the economy and thereby investment returns.” 

Especially in peril could be investments in fossil fuels or other legacy technologies that have been slow to adapt to the realities of investment eroding away from them. The GAO report mentions this concern specifically, as well as doubts about investments in companies and real estate that could be damaged or made less valuable by climate-change events. 

“As efforts to mitigate climate change focus on curbing such emissions, certain sectors that are dependent on fossil fuels could be significantly affected by a transition to a lower-carbon economy,” as the report puts the problem. “Additionally, some sectors are expected to suffer larger economic losses than others from direct physical effects of climate change, such as droughts or flooding.” 

For years, critics of TSP’s management—in Congress and elsewhere—have been telegraphing these concerns, criticisms that helped lead to the report.

The real eye-opener in the report is that—even this late into the spread of climate change concerns, and the financial market tides that have followed—the board that oversees TSP has failed to take climate change into account. “The Federal Retirement Thrift Investment Board, which oversees the TSP, hasn't assessed climate change-related investment risks—leaving participants potentially vulnerable,” the GAO analysts conclude. “We recommended it do so.”

 

Reader comments

Thu, Jul 1, 2021 chris

WHat should TSP do? some folks ask. The board should make sure they are diversifying away from more vulnerable investments. The signaling thatwould do with $700 billion in the TSP also helps leaders at carbon dirty companies that want to change direction to get power and actually change direction. Corporate boards LISTEN to very fat investor boards, and there aren't many bigger than TSP. So its good what GAO is concluding and putting out there. And it's not bad if TSP takes it up too.

Wed, Jun 30, 2021

Many factors affect market risk. Climate change is just one factor. Smart investors know this and take all factors into account when investing understanding their risk.. What exactly would the GAO expect the TSP to do?

Wed, Jun 30, 2021 MM

Good intentions but... exactly how would you take climate change into effect? Disinvesting in the oil companies sounds good, but maybe one of them is going to figure something out. I think this is a solution looking for a problem. The biggest issue with "investments" (stocks since that's all TSP is in) is that while the S&P500 average has been skyrocketing, the vast majority of companies on the list (493) are losing money. They average is due to 5 companies with extremely high earnings. Tell the TSP people to be aware of that. (What should they do instead?)

Tue, Jun 29, 2021

TSP participants have every opportunity to shift investments to "climate-related investments" if they want, so GAO needs to get off the back of the Federal Retirement Thrift Investment Board

Tue, Jun 29, 2021

Is it possible to get a more responsible board?

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