A new report from the Asset Owners Disclosure Project (AODP) found that 27 UK pension funds are “doing nothing material” to manage the financial risks associated with climate change.

And the AODP is threatening to bring a legal case against these fund managers in order to “challenge trustees and managers to fulfil their legal duty to protect investments from climate risk”. 

The AODP does for investment funds what CDP does for corporates – it asks them to disclose important environmental information in an effort to improve climate-change resilience.

The biggest risk identified by AODP is that companies like BP and Shell – which provide a ‘significant source of dividends’ for UK pension funds – will find their value wiped out and their assets worthless when the world transitions to a low carbon economy.

“It simply isn’t good enough to sit back, expect markets to manage their demise smoothly when history shows the market correction is likely to be sudden and brutal,” said AODP chief executive Julian Poulter.

“Many of our members are already angry and looking to us for ways to help them hold their funds legally accountable for the size of the gamble they are taking and the lack of portfolio protection in place.”

Climate 500

ADOP compiles an annual Climate 500 list, which ranks the climate performance of the world’s largest 500 asset owners – worth $400trn – including pension funds, insurance funds, sovereign funds, foundations and endowments. 

“This is a core risk issue and the laggard funds think that they can hide behind the herd, but they can’t,” said Poulter.

This years research found that just 7% of assets owners are able to calculate their emissions, while only 1.4% of asset owners have reduced their carbon intensity from the previous year.

The only UK fund to earn a AAA rating was, fittingly, the Environment Agency Pension fund. Aviva Insurance and the Universities Superannuation scheme earned AA ratings.

Stranded assets

Awareness of climate risk is growing all the time amongst institutional investors; just last week, HSBC released a report called ‘Stranded assets: what next?’ warning that fossil-fuel -dependent companies may become “commercially non-viable”.

Perhaps the most common form of mitigating risk is fossil-fuel divestment, a decision already taken by universities in Glasgow, Edinburgh and London. The UK medical industry has also pledged to dump its fossil-fuel stocks.

Brad Allen

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