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UK's top 25 Pension funds show mixed response to climate change

25 May 2018

The Environmental Audit Committee publishes responses it has received from the UK's 25 largest pension funds detailing the funds' approach to climate change risk and whether it is – or is not - incorporated into their investment decision-making.

The Committee also wrote to the Parliamentary Pension fund and received an unsolicited response from the London Pension Fund Authority, which are also published today.

Chair's comments

Mary Creagh MP, Chair of the Environmental Audit Committee:

"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.”

The Committee split the responses into three broad categories based on what the pension self-reported about their engagement with climate change:

  • A ‘more engaged' group that say they are taking steps to assess and minimise their exposure to the physical and transition risks from climate change. Pension funds in this group support recommendations on climate financial disclosures and most have committed to – or are considering—reporting in line with these recommendations.
  • An ‘engaged' group that are making some progress. They acknowledged climate change as a risk, but often saw it as one of the many environmental, social and governance (ESG) factors they had to contend with. This group have some responsible investment policies in place, but there was less demonstration of this being implemented in specific investment decisions. There was greater caution about committing to climate-related financial disclosures, although some are considering it.
  • A ‘less engaged' group that has not formally considered climate change as a strategic risk. For this group, climate change was spoken of as one of a number of environmental, social and governance (ESG) issues that investment managers are left to manage. There was little reported evidence of strategic input or oversight from the pension scheme's governing body. This group do not plan to report on climate risks and opportunities in line with recommendations on climate-related financial disclosures (see notes to editors).

Seven of the largest schemes 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).

This included one respondent—the West Midlands Pension Fund—that had already reported in its 2017 Annual Report in line with the TCFD recommendations. Eight of the schemes say they are considering how to respond and eight say they have no current plans to report in line with TCFD.

Totals from sample of 25 largest pension funds
Considered at Board level14
Listed at least one action on climate risk22
Discussed climate risk with actuary14
Committed to report in line with TCFD7
Considering whether to report in line with TCFD8
No plans to report in line with TCFD10
More engaged11
Less engaged4

Further information

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