UK pension schemes on track to fully integrate climate risk by 2026

UK pension schemes “unanimously” expect to have fully integrated climate risk into their decisions by 2026, according to a poll from Willis Towers Watson, although the reflection of climate risk in market evaluations is lacking.

Conducted during the group’s recent Climate Summit, the survey polled 70 UK pension schemes, revealing that half expect to fully integrate climate risk in less than a year, with 19 per cent already doing so.

A further 6 per cent expected to be fully integrated within six months, while a “considerable” 25 per cent expected it to take between six and 12 months to integrate climate into their major business decisions.

There was also variation in the expected timeline for implementing a carbon journey plan, with 17 per cent having already put in place such a plan.

A further 57 per cent stated that they were considering how to reduce climate risk using a carbon journey plan, although 26 per cent have yet to begin creating a strategy.

Nearly half (44 per cent) of respondents stated that no single solution would be adequate to meet the governance challenge of climate risk management, suggesting instead that a range of measures would be needed to fully tackle the issue.

Potential measures include greater delegation to sub-committees; greater delegation to external parties; and increased frequency and length of trustee meetings.

Furthermore, the poll revealed that climate risk is only somewhat, or not at all, reflected in current market evaluations for an "overwhelming" 96 per cent of schemes.

The scale of the information gap and data concerns were also highlighted in the findings, with 43 per cent of respondents citing lack of data as the main barrier in their ability to assess and manage climate risks, and 24 per cent pointing to issues around trustee knowledge.

Commenting on the findings, Willis Towers Watson head of investment advisory services, Dave Aleppo, emphasised that while the task is huge, mindsets are shifting "faster than I have ever seen".

He stated: “Climate is already a key metric of success for most pension schemes and with global assets representing around $100trn , the scale of resources that will be unleashed to tackle climate change and transform the world economy when climate is integrated into every decision will make a significant difference.

“As a result, we’re already seeing a steady change in the culture of the entire investment industry that supports asset owners.

“When we work with pension funds to evaluate asset managers, not only do we ensure that they have climate and stewardship embedded in their investment processes, we also prefer those organisations who have genuinely accepted and embedded the fundamental culture shift that’s needed.”

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