Index funds and the investors who own them face unmanageable risk from climate change, according to the director of Stanford University’s Sustainable Finance Initiative. Many of those investors are pensions.
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Alicia Seiger told members of the U.S. House Financial Services Committee last week that index investors are less able to manage climate risk because they’re less able to monitor it. Many pension funds join the New York State Retirement Common Fund in preferring index funds because of their low cost. Low cost has helped index fundsmanaged funds since their inception in 1976. Broad diversification has also helped, but that’s where climate risk enters.
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