Report: Just 5% of UK pension funds possess a climate change policy

Just 5% of the UK's largest pension fund managers have a specific policy on climate change in place, despite almost three-quarters (74%) claiming to acknowledge the risks that climate challenges pose to the finance sector.

The research, conducted by international law firm Pinsent Masons, surveyed 43 UK pension fund managers with £479bn in assets under management on their approach to sustainability.

The survey findings, published on Monday (5 November), reveal that only 12% of the firms have developed or adopted a metric for measuring the sustainability of their investments, while less than half (44%) discuss climate change in their pension reports.

None of the companies surveyed were able to produce specific targets for investment in low-carbon, energy-efficient or other sustainable assets, or for decarbonising their own operations.

”It has been apparent for some time that climate change issues can affect financial returns,” Pinsent Masons’ head of pensions and long-term savings Carolyn Saunders said.

“However, in the absence of a standardised approach to climate risk management in investments, most trustees are unsure how best to deal with the issue.”

Despite these findings, Pinson Masons concluded that several funds are creating metrics to measure climate change-related indicators, while a handful of others have already begun to actively monitor the environmental impact of their investment decisions.

Among these “leaders” is The Strathclyde Pension Fund, which carried out its first carbon footprint calculations of listed equity in 2016. The firm then repeated this exercise in 2018 to include an audit on carbon emissions.

Elsewhere, The BBC Pension Scheme is currently carrying out a carbon audit of its equity holdings, while The Universities Superannuation Scheme has committed to ensure it is ‘underweight’ in carbon investments.

Regulation, regulation, regulation

The survey results come shortly after the Department for Work and Pensions (DwP) confirmed its intention to introduce new regulations requiring trustees to be more transparent about their approach to environmental, social and ethical issues.

Set to be implemented in 2019, these regulations will require financial services firms to publicly explain how they account for environmental and social sustainability through their investment strategies and to detail how they influence the firms they invest in to become more sustainable.

“Clarity about trustee duties with regard to climate change is a priority,” Saunders added.

“The new regulations will make it clear that sustainability is a relevant consideration for all trustees, whatever their personal views or their ability to influence the businesses in which they invest.”

Climate peril for pensions?

Pinsent Masons’ findings echo those of a recent report from ShareAction’s Asset Owners Disclosure Project (AODP), which found that 63% of pension funds worldwide have “little or no strategy on climate change”. 

Similarly, the Environmental Audit Committee (EAC) recently conducted research among the UK’s 25 largest pension funds, concluding that less than half (12 funds) had discussed climate risks at board level. Of the 25, five were unable to identify one climate action they had taken.

In a bid to change this trend, the Institutional Investors Group on Climate Change (IIGCC), which includes firms such as Legal & General Investment Management (LGIM), BlackRock and Aviva, last month called on pension fund managers to factor climate-related risks into their planning processes.

The Group, which consists of 161 investment firms with more than €21trn in collective assets under management, is encouraging such firms to disclose and act on climate risks in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

The recommendations come at a time when finance giants are increasingly announcing plans to make their portfolios more sustainable by divesting from coal companies and those linked with deforestation, amid concerns that the next financial crash will be climate related.

Green finance at edie’s Sustainability Leaders Forum

Those interested in green finance will be keen to attend edie’s Sustainability Leaders Forum, where ING’s global head of sustainability Leon Wijnands will provide insight on how to capitalise on the TCFD recommendations and how to engage in this “new era” of climate risk reporting. 

The two-day event, taking place 5 & 6 February 2019 at the Building Design Centre, London, will also include debates on how to solve the plastics crisis and the state of corporate action on sustainable packaging. 

For more information and to register for the Forum, click here.

Sarah George

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