In recent days, we’ve seen more than a few articles decrying how public pension plans have jumped on the green energy investment bus, and try to advance climate sustainability goals as well as investment returns. The critics suggest that pension plans should focus on return, and not risk pensioner wealth on investments pursuing alternative goals.
Defenders of green energy investments frequently contend, in return, that advancing climate sustainability and pursuing good risk-adjusted returns for pension beneficiaries are not necessarily at odds with one another.
Here is one less-frequently-discussed but important way in which “being green” can promote risk-adjusted investment returns.
For many state and local government pension plans, the probability of any federal bailout is part of the investment calculation. If “being green” can increase the probability of a federal bailout, maybe it’s not only fashionable, but also wise to march with the crowd and not to your own drummer.
Trouble is, promoting 'sustainability' for government pensions in ways like this can combine with bailout incentives elsewhere (like in our financial system) to undermine the sustainability of our federal government's finances more generally.