Addressing Private Market Climate Risks in Maryland’s Retirement System - Private Equity Stakeholder Project

Maryland State Retirement and Pension System's substantial overweight to private markets creates significant climate risk exposure that institutional investors are only beginning to systematically address. The $74 billion fund allocates 41 percent of assets to alternative investments—including real assets, private equity, and absolute return strategies—substantially above the 31 percent average for U.S. public pensions. Within this allocation, private equity represents 21 percent of the total portfolio, nearly 50 percent above the 14 percent median for comparable institutional funds, concentrating climate transition risk in asset classes characterized by limited disclosure and price discovery.

The challenge of climate risk assessment in private markets has become acute as federal regulatory guidance diminishes. A 2026 Climate Risk Assessment noted that "with federal guidance dissipating, climate governance is shifting toward state-level governments and institutional investors." Comparative analysis from Oregon's state pension system illustrates the severity of this concentration: modeling revealed that over 80 percent of the plan's apportioned carbon emissions were embedded in private equity and real assets holdings. This finding suggests Maryland SRPS faces similar exposure dynamics, where portfolio-level climate transition risk is predominantly located in illiquid, opaque investment vehicles with limited real-time emissions reporting and carbon accounting frameworks.

Maryland SRPS holds direct and indirect exposure to fossil fuel assets through its private equity fund investments, with holdings tracked by the Private Equity Climate Risks Scorecard and Global Energy Trackers. These funds manage or financially back numerous energy companies and carbon-intensive infrastructure assets. The opacity of private market valuations and limited investor-level disclosure mechanisms mean that portfolio-level climate risk remains partially quantified and inadequately integrated into investment decision-making processes.

To address these governance gaps, Maryland SRPS established a Climate Advisory Panel with a mandate to advise the board on climate-related investment risks and opportunities. This institutional mechanism positions the retirement system to develop state-level climate governance standards in the absence of federal direction. The panel's role extends to identifying concrete policy tools, including specific timelines and divestment standards, to ensure private market allocations align with net-zero transition objectives and state fiduciary obligations.