UK’s largest pension funds questioned over climate change risks
The UK’s 25 largest pension funds, representing £555bn of assets under management, were yesterday asked to explain to a select committee how they handle the risks that climate change pose to savings.
This came on the same day that the Department for Work and Pensions admitted there was widespread confusion among pension trustees regarding the scope of their fiduciary duties in relation to environmental risks.
There is a concern that many are not considering how climate change could impact investment returns, with a green finance inquiry launched last year to explore how to further integrate sustainability into financial decision-making.
“A young person auto-enrolled on a pension today may be 45 years away from retirement. Over that timescale, these climate change risks will inevitably grow,” Environmental Audit Committee chair, Mary Creagh, said.
"The climate change risks of tomorrow should be considered by pension funds today. We are examining whether pension funds are starting to take these risks into account in their financial decision-making.”
The committee heard how asset owners and pension fund trustees had demonstrated many examples of good practice, but that their duties are sometimes misinterpreted to mean simply maximising short-term returns.
It is thought that this leads to the neglect of longer-term considerations, including environmental sustainability and climate change-related risks and opportunities.
This comes after the Task Force on Climate-related Financial Disclosures (TCFD) recommended last year that organisations reveal how climate risks are managed and overseen by their boards.
It also suggested that they disclose how they identify, assess and manage the risks, reveal the metrics and targets used, and report on the actual and potential impact of climate change on their business.
Bank of England governor, Mark Carney said: “Markets need the right information to seize the opportunities and mitigate the risks that are being created by the transition to a low-carbon economy.
"Over the coming year, issuers will begin to deploy the TCFD framework and through collaboration and engagement with the providers of capital, will together start to release more efficient and decision-useful disclosures.”
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Chris Seekings is a reporter for TRANSFORM