Pension funds adopt strikingly different approaches to climate change risk

by Carol Adams

Pension funds invest for the long term and scientists have concluded that climate change poses a significant risk to all aspects of life, including water, food and energy security.  The implications for business are significant and yet investor and corporate action does not match this known impact of climate change and other sustainable development issues on their ability to create value in the long term.

The top 25 UK pension funds were asked by the Chair of UK Government’s Environmental Audit Committee, whether they believe they are exposed to climate risk, what they are doing about it and whether they were planning to adopt the recommendations of the Taskforce on Climate related Financial Disclosures (TCFD).

The responses are now in and show a significant variation in thinking and action.   Detailed responses for the Universities Superannuation Scheme (USS) and HSBC  are in sharp contrast to those of the BP and Ford pension funds.

The Chair of the BP Pension Trustees, Sir Ian Prosser, writes:

Pension funds are exposed to a number of long-term financial risks, one of which could potentially be climate change. [emphasis added]

and addressing a question about what action has been taken in response to climate change related risk:

We have not taken specific actions but we continue to monitor this.

Unsurprisingly perhaps they are also not planning to follow the TCFD recommendations but have committed to:

monitor industry best practice and evolve our reporting in consultation with our auditor and advisers.

It is of course in universities where climate change science and social science research on organisational, government and policy responses to climate change is conducted and the USS response notes:

As changes in the climate could have major effects on both the economy and the quality of life of our members, issues related to climate change are legitimate concerns of pension fund trustees.

It goes on to acknowledge the risks of climate change to institutional investors, quantifies its investment in low carbon alternatives, outlines its approach to active engagement with companies on climate change and contends that companies should disclose TCFD data or explain to investors why they are not.

The HSBC Pension Fund Trustee response sets out is Climate Change Policy and demonstrates a clear recognition of the financial risk associated with climate change.  It discusses its LGIM Future World Fund which incorporates climate change risk mitigation through engagement and tilting away from companies with high carbon reserves and carbon emissions towards companies with green revenues.  In considering its Fiduciary Duty it notes that 60% of the Fund’s DC membership is under the age of 40 and would likely be invested for the long term.

Responses support a voluntary approach, although it appears this will not be sufficient for the likes of the BP Pension Fund.

 

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