Global investors call on pension funds to address climate-related risks

A group of 161 investment firms with more than €21trn in collective assets under management have called on pension fund managers to factor climate-related risks into their planning processes.

The Institutional Investors Group on Climate Change (IIGCC), which includes firms such as Legal & General Investment Management (LGIM), BlackRock and Aviva, has today (17 October) launched a report urging pension funds to go beyond regulatory requirements on climate action in order to generate benefits from the low-carbon transition.

Entitled Addressing Climate Risks and Opportunities in the Investment Process, the report provides guidance on how senior decision-makers can ensure they are disclosing and acting on climate risks in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

It additionally encourages pension fund boards to move beyond the UK Government’s new guidance on the responsibility of pension funds, which was published in September. The guidance includes a proposal which will require trustees to produce a Statement of Investment Principles incorporating climate change alongside ethical and social considerations by October 2019.

“It simply makes financial sense for pension funds to integrate climate change considerations into the investment process, decision making and dialogue with companies in with they invest,” the IIGC’s chief executive Stephanie Pfeifer said.

“Pension funds need to consider how extreme weather events and policy changes to reduce emissions will impact their investment portfolio and their ability to pay out pensions. They should also look for the investment opportunities arising from the energy transition and the shift to a cleaner economy.”

Climate peril for pensions?

The launch of the report comes after a survey by the Environmental Audit Committee (EAC) of 25 of the UK’s largest pension funds in June found that under half (12) had no plans to report on how they are taking climate change into account. Meanwhile, one-fifth of the respondents were unable to identify one climate action they had taken.

However, the survey did find that the majority of funds were moving to reduce their exposure to high-risk assets, with 80% having a climate strategy and seven having committed to reporting in line with TCFD recommendations.

EAC chair Mary Creagh MP said of the survey that the “encouraging” actions by the majority of respondents stood in contrast to the “worryingly complacent” responses from the minority.

Since the publication of the survey results, a similar study by ShareAction's Asset Owners Disclosure Project (AODP) found that 63% of the largest 100 pension funds worldwide have "little or no strategy on climate change".

AODP claims that less than 1% ($90bn) of the assets collectively owned by these funds are invested in low-carbon solutions, a figure which falls short of The Intergovernmental Panel on Climate Change's global recommendation of $1.1trn.

Sarah George