Most UK Pensions Taking Steps to Manage Climate Risk

However, some funds are ‘worryingly complacent’ says Parliamentary committee.

Most UK pension funds have taken steps to manage their climate change risk, according to the results of an inquiry launch by Parliament’s Environmental Audit Committee.

The committee launched the “Green Finance” inquiry to scrutinize the government’s strategy to develop “world-leading Green Finance capabilities,” and investigate how investment in longer-term sustainable development can be incentivized.

“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,” said Mary Creagh MP, chair of the Environmental Audit Committee. “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 materialize during savers’ lifetimes.”

The inquiry responses were separated into three main categories based on what the pension self-reported about its engagement with climate change: a “more-engaged” group, an “engaged” group, and a “less-engaged” one.

The “more engaged” group say they are taking steps to assess and minimize their exposure to the physical and transition risks presented by climate change. These pension funds support recommendations on climate financial disclosures, and most are either considering, or already have committed to reporting in line with these recommendations.

The “engaged” group acknowledges climate change as a risk, but often sees it as one of the many environmental, social, and governance (ESG) factors that has to be dealt with. While the group has some responsible investment policies in place, there was less evidence of this being implemented in specific investment decisions. The group also exhibited greater caution about committing to climate-related financial disclosures, although some are considering it.

And the “less engaged” group has not formally considered climate change as a strategic risk, and there was little reported evidence of strategic input or oversight from the pensions’ governing body. The group does not plan to report on climate risks and opportunities in line with recommendations on climate-related financial disclosures.

Among the largest pension funds, 11 were in the “more-engaged” group, eight were in the “engaged group,” and four were in the less-engaged category.

Seven of the largest pensions have committed to report on the climate change risks and opportunities facing their funds in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Eight say they are considering how to respond, and another eight say they have no current plans to report in line with TCFD.

Earlier this month, the Environmental Audit Committee released a report saying that there has been a “dramatic and worrying collapse” of low-carbon energy investments since 2015 that threatens the UK’s ability to meet its carbon budgets. The report said that, in cash terms, investment in clean energy fell by 10% in 2016 and 56% in 2017, and that annual investment in clean energy is now at its lowest since 2008.

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