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Biden Climate Edict Could Spell End for TSP Fossil Fuel Investments

The president’s executive order aimed at incorporating “climate-related financial risk” into federal budgeting also instructs officials to review how the Thrift Savings Plan considers risks from climate change in its decision-making.

President Biden’s recent executive order aimed at ensuring federal agencies consider the risks of climate change in their budgeting and making the American economy carbon-neutral by 2050 also has the potential to impact how federal employees save for retirement.

The edict instructs the secretary of Labor to identify actions “to protect” federal employee pensions from “the threats of climate-related financial risk.” And it requires an assessment within 180 days of how the Federal Retirement Thrift Investment Board, which administers the Thrift Savings Plan, “has taken environmental, social and government factors, including climate-related financial risk, into account.”

Democratic lawmakers in recent years have introduced legislation to require the Thrift Savings Plan to offer versions of their investment funds that divest from contributors to climate change like fossil fuel companies, but those bills never advanced through Congress. The most recent iteration, the RESPOND Act, introduced by Rep. Rashida Tlaib, D-Mich., and Sen. Jeff Merkley, D-Ore., would establish a Federal Advisory Panel on Climate Change within the Federal Retirement Thrift Investment Board, create an optional investment plan for those who don’t want to invest in fossil fuels, and plan to divest from “corporate polluters” altogether if certain profitability metrics are met.

Efforts to offer 401(k)-style retirement savings opportunities to federal workers without investing into fossil fuel companies got a boost following Biden signing the climate change executive order, when the American Federation of Government Employees, the largest federal employee union, endorsed both the executive order and the RESPOND Act. Previously, only AFGE’s local representing Environmental Protection Agency workers had endorsed the bill.

“Curbing investments in harmful fossil fuels is not only good for the environment and our planet—it’s good for workers too,” said AFGE National President Everett Kelley. “According to Blackrock, the world’s largest asset manager, removing fossil fuel securities from the Thrift Savings Plan will have no negative impact on the rate of return federal employees get on their retirement savings. This change is an opportunity to take an important step toward addressing our climate emergency and saving our environment with no sacrifice in employees’ retirement savings.”

TSP spokeswoman Kim Weaver said the agency did not have any comment on Biden’s executive order. But in excerpts of a memo regarding the RESPOND Act published by FedSmith, officials said the bill would effectively “gut” four of the TSP’s five investment funds.

“Removing individual companies or specific segments of the market from the funds or their benchmark indices is highly likely to result in lower risk-adjusted returns to participants over the long term,” the memo stated. “The RESPOND Act violates one founding principle of the FRTIB’s mission to provide federal workers and retirees passively managed investing based on broad market indices.”

That document suggested that directing the Labor Department to create a “national standard for all retirement investments” would accomplish the same goal from a “more consistent approach.”

Weaver noted that the law establishing the Thrift Savings Plan provides only members of the agency’s board with the ability to “make investment decisions.” The board traditionally has resisted divesting of funds for social or political reasons. Officials have responded to recent efforts to block TSP investment in Chinese markets by noting that the question of whether a market is safe for American investments falls under the purview of the Treasury Department’s Office of Foreign Assets Control, not the TSP.