Support for the Task Force on Climate-Related Financial Disclosures (TCFD) and Impact on Non-Renewable Energy Sector Investments in United States Public Pension Funds

Abstract

The recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) are expected to play an important role in advancing the transition towards a climate target-aligned economy. However, the impact of the TCFD framework on investment decisions in sectors vulnerable to climate-related risks, such as the non-renewable energy sector, has yet to be studied. Applying the lens of institutional theory, this study investigates whether normative pressures stemming from voluntary support for the TCFD influence non-renewable energy sector investment decisions by public pension funds in the United States. This study employs a quantitative approach to pursue three interconnected objectives. First, identify the public pension funds in the United States that support the TCFD, and among those, identify their stage of implementation of the TCFD’s recommendations. Second, assess whether fund size and location are influential in determining TCFD support or implementation stage. Third, examine whether the exposure to non-renewable energy sector investments before and after the release of the TCFD recommendations in 2017 significantly differs depending on whether a fund supports the TCFD or not. The study’s findings reveal that 8 of 191 sampled public pension funds in the United States support the TCFD and are at various stages of implementation of the recommendations. Fund size was identified as a significant predictor of both TCFD support and stage of implementation, with larger funds more likely to be supporters and more advanced in implementation. California and New York were the only states with public pension funds that support the TCFD. Location, specifically whether a fund is in California or New York, emerged as a significant predictor of TCFD implementation stage, with funds in these two states being more advanced in implementation. Lastly, no significant differences in exposure to non-renewable energy sector investments before and after the TCFD recommendations were released between TCFD supporters and non-supporters were found. These findings contribute to the literature on the implementation of the TCFD framework and its impacts on investment decision-making. They also apply institutional theory in a new context and demonstrate that normative pressures resulting from voluntary TCFD support have not redirected institutional investments away from the non-renewable energy sector, despite its significant climate-related risks. These findings may be of interest to policymakers working towards a climate target-aligned economy and considering regulatory measures to influence institutional investment decisions. They also may be of interest to public and private pension funds seeking to understand market engagement with the TCFD and its impact on investment decisions.