Companies’ failure to meet climate goals ‘undermines’ pension fund ability to manage financial risks

The highest-emitting companies’ failure to meet climate goals ‘undermines’ pension funds’ ability to manage financial risks, a member of the Church of England Pensions Board has said.

The comments follow a report for the Transition Pathway Initiative (TPI) that found almost half (46 per cent) of the world’s highest-emitting publicly-listed companies do not adequately consider climate risk in operational decision-making.

Church of England Pensions Board, director of ethics and engagement, and co-chair of TPI, Adam Matthews, said the research shows that many more investors need to engage with big-emitters across all sectors of the economy, to ensure companies are setting emissions targets consistent with the goals of the Paris Climate Agreement.

“Engagement is starting to show results but not at the pace needed. A failure to grasp the seriousness of the warning from this TPI report, and to recognise the slow pace of corporate progress, will directly undermine our ability as pension funds to manage the financial risks within our portfolio for our beneficiaries," he said.

The report also found that a quarter do not report their own emissions at all, undermining a key recommendation of the Taskforce for Climate-related Financial Disclosure (TCFD). The report assessed companies on ‘management quality’ related to climate, and went further by analysing ‘carbon performance’, in terms of current and planned GHG emissions. A total of 160 companies were analysed on carbon performance and the research found that only 20 companies (one in eight) are aligned with a pathway that would keep global warming below 2C.

“The clock is ticking on irreversible climate change. The fact only one in eight of the highest-emitting firms are responding at anywhere near the pace required is an urgent challenge to investors. Investors themselves need to adopt an emergency footing otherwise the window to secure the change we need will be gone,” Matthews added.

The Grantham Research Institute on Climate Change and the Environment at the London School of Economics carried out the study for TPI. It used FTSE Russell data to analyse leading companies in 14 carbon-intensive sectors such as oil and gas, electric utilities, automobiles, airlines and steel.

These sectors account for 41 per cent of global emissions from publicly listed companies worldwide. TPI is backed by investors with $14trn of assets including pension funds such as CalPERS and Environment Agency Pension Fund, and asset managers such as Legal & General Investment Management, BNP Paribas, Aberdeen Standard and Robeco.

Environment Agency Pension Fund, part of the Brunel Pension Partnership, and co-chair of TPI, Faith Ward, said: “Today’s research shows clear leaders and laggards emerging within sectors from airlines to aluminium – and that gives investors an investment-relevant decision to make today. As the effects of climate change accelerate we can expect to see more capital flow away from those companies that bury their head in the sand, and towards those companies aligning with a 2C pathway.”

“The failure of 25 per cent of high-emitting companies to report their own emissions is putting investors in a catch 22 situation on disclosure. The UK is one of several countries moving to make climate risk reporting by asset owners mandatory, yet without emissions data from a quarter of the high emitting companies that request will be impossible to deliver.”

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