Some pension funds ‘worryingly complacent’ on climate risk strategies

A minority of the UK’s largest pension funds have been branded “worryingly complacent” on climate change for failing to consider it in their investment strategies.

A report released by the Environmental Audit Committee (EAC) last Friday, 25 May 2018, found that nine out of 25 of the UK’s largest pension schemes said they have no plans to report in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), while only 12 have considered it at board level.

In March, EAC wrote to the UK’s 25 largest pension funds in order to understand their investment strategies around environmental risks and to ask if they accepted the Financial Stability Board’s TCFD, as part of its initiative into green finance.

The committee split the responses into three groups; more engaged (11), engaged (8) and less engaged (5). The entry for Lloyds/HBOS was removed based on incomplete information.

EAC chair Mary Creagh said: “It is encouraging that a majority of the UK’s largest pension funds say they are taking steps to manage the risks that climate change poses to UK pension investments.

“But a minority of funds appear worryingly complacent. Pension funds should at least assess the exposure of their assets to the physical, transition and liability risks from climate change that will materialise during savers’ lifetimes.”

Ford Pension Fund, with £11.96bn of assets under management (AUM) fared worst, scoring negatively on every touch point, with no plans to commit to TCFD, it has never discussed climate risk at board level, and has not listed at least one action on climate risk or discussed issues with an actuarial advisor.

Following closely behind is BP Pension Scheme with £24.45bn AUM, who also failed on much of the criteria, but had discussed climate risk at board level as part of the environmental, sustainable and governance (ESG) discussion.

Other ‘less engaged’ funds included Aviva Staff Pension Scheme, Electricity Pension Trustee Limited.

The top three pension funds, the Universities Superannuation Scheme (£60.55bn AUM), BT Pension Scheme (£49.34bn AUM) and RBS Group Pension Fund (£44.10bn AUM) all ranked as ‘more engaged’.

Sackers partner, Stuart O’Brien, commented: “True to its word, the EAC published each and every response from the UK’s largest pension funds on how they are managing climate change risk, with several being put on the naughty step for being ‘less-engaged’.

“However, when digging a little deeper, I wonder whether this categorisation is really fair.
Some are likely to have extremely mature investment strategies which probably have only a tiny allocation to equities. These schemes may justifiably be approaching climate change risk in a different way.”

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