Credible Investment Strategies Must PRIORITIZE Climate Solutions that:
Prioritize real-world decarbonization. Not all low-carbon investments or portfolio decarbonization strategies deliver this outcome. Credible investments are those that finance projects and companies that deliver measurable, real-world emissions reductions, even if they temporarily increase portfolio emissions.
Facilitate the energy transition. A rapid transition from fossil fuels to renewable energy sources is required to limit warming to 1.5°C. In addition to building solar and wind capacity, investors should seek opportunities to improve grid infrastructure, energy storage, and energy efficiency.
Protect nature and biodiversity. Climate solutions must include investments that protect, restore, and sustainably use ecosystems and natural resources. Over half the world’s GDP depends on nature. As with climate change, unprecedented biodiversity and nature loss undermine the foundations of both the global economy and the global financial system.
Support community climate resilience. Investing in climate solutions isn’t just about transforming the economy; it’s about ensuring communities—including those of pension beneficiaries—are equipped to adapt to and thrive in a climate-impacted world. Climate solutions portfolios must also encompass:
• Building and retrofitting green, affordable housing. Projects that expand access to affordable homes and reduce real estate-related emissions address both the housing and climate crises, benefiting public-sector workers and supporting the long-term economic health of communities.
• Supporting community adaptation strategies. Adaptation investments are needed to help communities recover from, and prepare for, a changing climate. Such projects include blue-green infrastructure and coastal restoration.
• Promoting environmental health. Investments that improve air and water quality, expand access to nature, and reduce harmful pollutants also help cut greenhouse gas emissions. Such investments help improve health outcomes for pension beneficiaries, their communities, and the broader workforce.
Build economic resilience. Strong local economies are critical to community climate resilience: they support equitable transitions, improve recovery from climate-related shocks, and foster vibrant communities. Such investments range from municipal bonds to international development financing. Investors should:
• Seek out regional investments. Climate mitigation and adaptation efforts in the communities where public sector employees work and live support a more resilient economy, including by protecting public sector jobs and services.
• Help create green jobs. The transition depends on a skilled, prepared workforce ready to build and maintain the solutions that a low-carbon economy demands. Supporting climate solutions also means investing in projects and industries that expand employment opportunities, diversify regional economies, and build a workforce equipped to support climate adaptation and mitigation efforts.
• Support globally equitable climate financing. Decarbonizing the global economy also requires supporting the low-carbon transition and financing of resiliency and adaptation measures for communities in the global South.
• Advance a just transition. Climate solutions should support a just transition, in which the shift to a low-carbon, sustainable economy is fair, inclusive, and equitable. Investments should seek to:
• Support workers through the transition. Investments should seek opportunities that promote union labor, green job creation, and worker protections, especially in the context of the energy transition. Where these standards are not met, pensions must engage with companies to strengthen worker rights and protections.
• Invest in Indigenous stewardship and respect Indigenous rights. Indigenous communities are among the best stewards of critical natural resources and carbon sinks, including forests. Investments must respect and support the self-determination, land rights, Free Prior and Informed Consent (FPIC), and community resources of Indigenous and traditional communities.
• Prioritizing communities most harmed by climate change and the industrial drivers of climate change. In addition to contributing to climate risk, the inequitable distribution of environmental harms exacerbates the systemic risks associated with growing inequality. Climate solutions investments must support communities equitably by identifying opportunities to invest in and build resilience in vulnerable and historically marginalized communities.
Provide credible transition finance. High-emitting companies will require transition financing, but such financing must be contingent on the adoption and implementation of a credible decarbonization strategy aligned with limiting warming to 1.5°C or less.
• High-emitting and high-impact companies that are implementing credible transition plans may be counted. High-emitting companies are those with significant Scope 1, 2, and/or 3 greenhouse gas emissions, and high-impact companies, such as financial institutions, are those whose business models significantly influence economy-wide emissions.
Transition finance will play a pivotal role in reducing emissions, but poses significant risks of greenwashing and must be approached with strong guardrails and human rights due diligence. Credible investments in transitioning companies may temporarily increase portfolio emissions, but with time-bound due diligence, will help drive real-world decarbonization in the long run.
Investments that Constitute Real Climate Solutions SHOULD Include:
• Renewable energy technologies like wind and solar.
• Energy storage and grid improvements to help bring renewables online.
• Activities that protect, sustainably manage, and/or restore natural or modified ecosystems. This includes wetlands restoration, tree planting, and land management to support carbon dioxide removal, watershed conservation, biodiversity enrichment, and wildlands preservation.
• Greening manufacturing processes, such as steel, cement, chemicals, and related R&D.
• Circular economy initiatives that minimize, recycle, and/or regenerate materials.
• Sustainable agriculture, including ecologically regenerative and conversion-free agriculture.
• Energy efficiency retrofits and future upgrades.
• Decarbonizing transportation and shipping, including investments in electrified public transportation, electric vehicles, and related infrastructure, and zero-carbon fuels.
• Sustainable and affordable housing projects that mitigate the housing crisis and real estate emissions. • Community climate resilience and adaptation strategies, such as blue-green infrastructure, resilient housing initiatives, and coastal restoration projects.
Credible Strategies Must AVOID Investments that:
Rely on false climate solutions. False climate solutions are those investments that do not reduce greenhouse gas emissions or do so in ways that are insufficient, ineffective, or harmful.
• This includes carbon offsets and biodiversity offsets (which are largely ineffective and unregulated), unproven climate technologies like geoengineering, and unproven/non-commercially scalable carbon capture technologies.
Support companies developing long-lived, high-emitting assets. Near-term investments in projects or infrastructure with high greenhouse gas emissions will lock in emissions for decades due to their long lifespans, and companies pursuing such projects actively undermine the low-carbon transition. Investments in such companies, even through green bonds and green project financing, may indirectly subsidize continued high-carbon activities if the company’s overall strategy is not oriented toward decarbonization. For this reason, the following must be excluded from any credible climate solutions strategy:
• High-emitting companies without credible, time-bound transition plans. Companies developing long-lived, high-emitting assets without a renewable energy strategy cannot be considered part of a climate solutions strategy. This includes industrial facilities, large-scale livestock operations, technology companies that use or rely on data centers (including cloud computing and generative AI), and other assets that rely on high-emissions processes without a clear path to deep decarbonization.
• Companies on the Global Oil and Gas Exit List (GOGEL) and Global Coal Exit List (GCEL). No major fossil fuel company has a credible transition plan. The world’s largest polluters cannot credibly be deemed to be contributing to “climate solutions” while failing to transition away from the practices most responsible for driving climate change.Support companies engaged in activities that drive deforestation and native vegetation conversion that lack clear targets and a public, actionable plan to mitigate their ecological footprint. This encompasses companies involved in commodity-, infrastructure-, and mining-driven deforestation, and native vegetation conversion.
Support companies engaged in activities that drive deforestation and native vegetation conversion that lack clear targets and a public, actionable plan to mitigate their ecological footprint. This encompasses companies involved in commodity-, infrastructure-, and mining-driven deforestation, and native vegetation conversion.
Climate Solutions Investments SHOULD NOT Include:
• Carbon and biodiversity offsets, which are often poorly regulated, may rely on improper baselines or counterfactual assumptions and avoid taking responsibility for emissions caused by specific actions.
• Unbundled renewable energy credits (RECs) that may freeride on utilities or energy developers that pursue renewable energy because it is cost-effective, even without a REC payment.
• Greenwashed transition finance, namely, the continued financing for high-emitting companies that either lack or are not following a science-based transition plan. This includes project financing, general-purpose financing, and acquisition financing.
• Gas infrastructure, including power plant fuel conversion, LNG ports, and pipelines. Methane gas is a climate pollutant, and LNG buildout exacerbates carbon lock-in, reducing demand for renewable energy infrastructure.
• “Renewable” energies that rely on, promote, or prolong oil and gas infrastructure, such as grey hydrogen or renewable natural gas (RNG).
• Proposed decarbonization plans that rely exclusively on unproven, non-commercialized, or uneconomical-at-scale technologies, such as carbon capture and storage (CCS) — particularly when such plans bypass available technologies, like renewable energy.
• Geoengineering and similarly risky large-scale interventions.
• Biofuels and land management systems that do not result in net carbon reductions or that compete with food sources. Analysis of the lifecycle of biofuels and the resulting land-use changes reveals that biofuels are not, in fact, carbon neutral as often touted.
• Farmlands investments that push out small-scale farmers or violate international human rights standards.
• Data centers, AI, and the technology companies that lack credible, science-based plans to meet energy requirements with additional, local, renewable energy at a sufficient scale.
Article by Jessye Waxman, a Campaign Advisor for the Sierra Club’s Sustainable Finance campaign.