£555bn pension funds questioned over climate risk 'misunderstandings'

Government ministers are concerned about "outright misunderstandings" amongst the UK's top 25 pension funds, with assets under management worth £555bn, relating to failures to account for climate-related risk.

MPs are concerned that fiduciary duties are often misinterpreted as efforts to maximise short-term returns

MPs are concerned that fiduciary duties are often misinterpreted as efforts to maximise short-term returns

The Environmental Audit Committee (EAC) has today (5 March) called on the UK’s top 25 pension funds, including the Universities Superannuation Scheme, the BT Pension Scheme and the Barclays Bank UK Retirement Fund, to disclose information on how they view and manage climate-related risks against pension savings.

A letter was sent from the EAC following an admission from the Department for Work and Pensions that there is little understanding amongst trustees on the scale of fiduciary duties that are related to climate and environmental risks.

The EAC’s chair Mary Creagh said: “Climate change means insurance firms will be hit with increasing claims related to extreme weather. We want to know what pension funds are doing to safeguard people’s pensions from the financial risks of climate change.

“The climate change risks of tomorrow should be considered by pension funds today. A young person auto-enrolled on a pension today may be 45 years away from retirement. Over that timescale these climate change risks will inevitably grow. We are examining whether pension funds are starting to take these risks into account in their financial decision making.”

Creagh noted that many fossil fuel companies could lose value as the world transitions to a low-carbon economy envisioned by signatories of the Paris Agreement. Research has shown that utilities has been the worst-performing sector in the Morgan Stanley global shares index since 2008.

According to the EAC, asset owners have a fiduciary duty to act in the best interests of their beneficiaries. Despite numerous examples of good practice – notably from the Bank of England – MPs are concerned that duties are often misinterpreted as efforts to maximise short-term returns.

Banking on change

In 2015, G20 finance ministers called on the Financial Stability Board to review climate risks in the financial sector. This led to the creation of the Task Force on Climate-related Financial Disclosure (TCFD), chaired by Michael Bloomberg, in 2017.

The TCFD has since published a report of recommendations aiming to create a framework for financial disclosures on climate-related risks and opportunities to be linked to traditional filings. The UK Government has endorsed the recommendations.

Just a few months ago, Barclays highlighted the shift in focus that is transforming the financial sector. The bank launched a set of green finance products that will help promote sustainability in the UK and across the globe.

At a recent edie event, Barclays’ managing director of research, and TCFD member, Mark Lewis, noted that one of the aims of the Taskforce is to “create a market for a 2C world”, and that companies would only realise this transformation if climate mitigation was accelerated by a top down approach.

Mary Creagh at edie Live

Mary Creagh will be speaking at the Resource Efficiency theatre at day one of edie Live in the NEC, Birmingham, discussing the business implications of the 25-Year Environment plan alongside WRAP’s chief executive Marcus Glover and tech UK’s head of environment Susanne Baker.

Running between 22 – 23 May 2018, edie Live plans to show delegates how they can achieve their Mission Possible. Through the lens of energy, resources, the built environment, mobility and business leadership an array of expert speakers will be on hand to inspire delegates to achieve a sustainable future. For more information click here.

Matt Mace


bank | edie Live | insurance


Climate change
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