Global pension funds urged to act on net-zero commitments

Pension schemes around the world have been urged to take action now to address climate change and sustainability issues, with industry experts stressing that they have an "essential" role to play in supporting the transition to net zero amid a "decisive decade".

Speaking at the Make My Money Matter inaugural Net Zero Pension Summit, Principles for Responsible Investment CEO, Fiona Reynolds, stressed that “time is really of the essence” when it comes to both making net-zero commitments, and putting them into action.

“[COP 26] is really our last chance to get on track for 1.5 degrees of warming, and with only only 13 of the top 300 pension funds in the world having committed to setting net-zero targets so far, we've really got a long way to go in a short space of time," she said.

Reynolds clarified however, that pension schemes do not need to do it alone, emphasising the importance of collectively presenting “one powerful voice”, and stating that whilst individual action is "very important", investors can be more effective when they work together.

"It’s simply not enough for pension funds to ask others to take action on climate change, whether that’s governments, investment managers or businesses," she clarified, "they must act themselves."

Adding to this, UN Deputy Secretary General, Amina Mohammed, stressed that whilst the recent net-zero pledges and announcements are encouraging, it is “essential” that more join these efforts.

She stated: “We face lost decades for development and a grave setback in our efforts to achieve the sustainable development goals (SDGs), and the goals of the Paris Agreement.

"We must ensure that developing countries have access to finance, to invest in short- and long-term actions that put them on a path to a low-carbon resilient inclusive recovery. This requires a concerted global response on several fronts, to hit targets on SDGs.

"To keep the promise of SDGs, we cannot sit idly and watch others take the lead, we are in a decisive decade to deliver the SDGs. We must call on everyone everywhere to be more ambitious, more courageous, and increasingly daring to flip the orthodoxies."

She also stressed that net-zero pledges must be backed by "credible targets and timelines", emphasising that asset owners, including pension schemes, hold "great sway" in ensuring the economy aligns with net zero through the investment change.

She stated: "Pension funds with their over US $50trn in assets under management can influence the decisions of asset managers and real economy companies in their portfolios.

"Tapping into their unique spheres of influence, net-zero pensions can move the markets and their peers for both people and planet.

"We need your help to move the needle systematically. This transformation, the world needs toady, cannot happen without your leadership and support.

"Your net-zero commitments must be backed by credible short-term goals, aligned with the 1.5 degree goal of the Paris Agreement. This is essential to achieve the ultimate finance goal of the Paris Agreement by shifting the trillions towards a low-carbon resilient and inclusive economy."

COP 26 President, Alok Sharma, also stressed that the world is “at a crunch point”, warning that to keep the 1.5 degree target in reach, global emissions must be halved by 2030, with net-zero emissions by the middle of the century.

“That requires action, now," he stated, continuing: "We cannot kick the can down the road any further, if we do not take this change to take 1.5 degrees alive, it will slip from our grasp, and so will our best hope of building the future we want to see.

“So COP 26 must be the moment that every country and every part of society embraces their responsibility to protect our precious planet, and that includes finance, because without it the task ahead is near impossible.”

Sharma agreed that pension funds globally must pay a “major role”, arguing that “we need to get our savings for the future, shaping the future”, also emphasising that this no longer requires a sacrifice in returns, as the “economics have changed".

However, he clarified that there is still more to be done, urging all financial organisations to join those who have already taken action, and to commit to a net-zero future, as well as taking four other steps to protect the planet.

He explained: "First, commit to exit coal finance, so that together we make COP 26 the moment that we consign coal power to the past where it belongs. Second, increase investments in climate action and emerging markets.

“Thirdly, protect nature. By 2025 ensure that none of your investments contribute to deforestation, and by 2030 ensure that you investments are contributing to the restoration of the natural world.

"Finally disclose your climate risk in line with the TCFD. This will become mandatory across the UK economy in 2025, and the government will shortly introduce regulations on what this means for pension funds to ensure trustees take account of climate change risk in each and every decision.

“There is a real advantage in getting your house in order, and early, awareness of the climate crisis is growing all the time, and consumers are increasingly want their investments to align with their values.”

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