Global nonprofit ClientEarth has put the United Kingdom’s largest pension funds on notice over its failure to appropriately adapt to increasing climate risk.
ClientEarth’s climate finance lawyers penned and sent a letter to 14 of the UK’s largest pension schemes that have already been put in the spotlight by the House of Common’s Environmental Audit Committee’s (EAC) recent green finance enquiry which highlighted the relative poor attention being paid to understanding climate risk by these same pension funds. Specifically, the Chair of the EAC, Mary Creagh MP, wrote to the top 25 pension funds in the UK to ask how they manage the risks that climate change poses to their pension funds.
“Climate change means insurance firms will be hit with increasing claims related to extreme weather,” said Mary Creagh in March. “Fossil fuel companies could lose value as the world implements the Paris Agreement on climate change to keep to below 2°C. Energy companies that do not make a timely low-carbon transition risk being left behind. We want to know what pension funds are doing to safeguard people’s pensions from the financial risks of climate change.
“The climate change risks of tomorrow should be considered by pension funds today,” Creagh continued. “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. We are examining whether pension funds are starting to take these risks into account in their financial decision making.”
The EAC found that some of the leading pension funds in the country were “more engaged” than not, but the majority failed to show that they understood or had sought to understand the potential damage from climate risks.
- New Airways Pension Scheme
- National Grid UK Pension Scheme
- BAE Systems Main Scheme
- Electricity Supply Pension Scheme
- Ford Pension Fund
- BP Pension Fund
- Rolls-Royce Pension Scheme
- Shell Contributory Pension Fund
- Tesco pension scheme
- HBOS Final Salary Pension Scheme
- New British Steel pension scheme
- Aviva Staff Pension Fund
- Lloyds Bank pension scheme
- Mineworkers’ Pension Scheme
“As some of the biggest pension schemes in the UK, these schemes represent the retirement income of a large number of people, making it crucial that they step up their actions on protecting and future-proofing members’ pensions,” said ClientEarth lawyer Joanne Etherton. “Trustees’ legal duties are not static and a court would look to the evidence available and how their peers are responding in determining whether they are in breach – in short, legal duties on climate risk are evolving.
“The EAC raised climate risk as a key financial issue with some of the UK’s biggest schemes and some of the responses showed a woeful level of understanding and awareness, suggesting that trustees are still not clear on what is legally required of them,” Etherton added. “We are now putting these schemes on notice of the available evidence and setting out the standard that they should be looking to meet as they develop their climate policies, as well as the risk for failing to do so.”
This week’s letter from ClientEarth to the trustees of the 14 pension funds comes at the same time as ClientEarth publishes two reports from consultants. The first explored the current practices being implemented by asset owners in addressing climate-related risks while the second report focuses on the reason why investors should take note of and act upon climate-related risks.
The first report was commissioned by ClientEarth and written by advisory firm Sustineri and found that 67% of asset owners covered by the report have divestment policies in place pertaining to high-emitting companies, or companies that have not been responsive to efforts to engage.
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