Pension funds need to go further in avoiding the financial risks posed by climate change which directly affect their savers and investors, according to a major new drive to raise awareness.
The Green Light campaign, which is being launched by pensions minister Steve Webb on Tuesday, is co-ordinated by responsible investment campaign group ShareAction. It has the support of a range of unions and NGOs, including WWF-UK, Friends of the Earth, Christian Aid and Unite.
It aims to help to help pension funds industry understand and limit their collective exposure to various climate-related risks, ranging from policy through to the physical impacts of climate change that are set to play out in the coming decades.
The launch comes less than a week after a group of major investors, collectively worth over $3 trillion, called on fossil fuels firms to assess the future sustainability of their businesses, in the face of the threats posed by climate change.
An accompanying report says that British pension funds are indirectly responsible for emitting around a quarter of all UK greenhouse gases, through the firms they invest in. Popular high-carbon stocks, listed on the London Stock Exchange, include BP, Royal Dutch Shell and Rio Tinto.
The UK’s private pensions system – thought to be worth over £3 trillion – is one of the largest in the world. Millions of workers across the country are currently being placed in workplace pension schemes in a process known as automatic enrolment – many of them under the age of 30.
The Green Light campaign says it “focuses on the interests of the growing numbers of younger savers who bear all the investment risk in defined contribution pension schemes.” It adds that these younger workers are the ones who will experience the worst financial impacts that derive from climate change and resource scarcity.
“Pension savers are rightly demanding urgent action to protect their savings and their future quality of life by focusing on the economic risks of climate change”, said Catherine Howarth, CEO of ShareAction.
“A growing chorus of voices is challenging our pension industry’s complacency about the climate stability we depend on. Today’s campaign is a major step forward in uniting those voices and putting pension savers interests back at the heart of what the industry does.”
Pension fund sustainability was thrust into the spotlight earlier this month when, at the National Association of Pension Funds (NAPF) annual conference, Prince Charles described the industry as “increasingly unfit for purpose” because of its short-term outlook.
He said, “Is there not a case for ensuring your portfolios are sustainable in the long-term? Could you not do so by incorporating sustainability into your long-term strategy rather than having it sit in a subordinate silo?”
As replacement stocks for fossil fuels, the Green Light report encourages pension funds to look at what it describes as “significant” low-carbon investment opportunities.
It says, “We have recommended that pension funds take steps to articulate their demand for green investment opportunities that match the fund’s risk/return requirements to both policymakers and their investment agents.”
It describes such opportunities as “viable and desirable” for two reasons: as a hedge against climate risks and an as a “powerful” signal of public demand to the industry.
David Nussbaum, chief executive of WWF-UK, said investors and savers have an important role to play in recognising the risks posed by high-carbon investments.
He added, “The successful businesses of the future will be the ones who value, manage and restore natural assets and limit their exposure to risks such as those presented by a changing climate.”
ShareAction has also published a report, a ‘how to’ guide for pension savers, which sets out the steps that pension funds need to take to back a sustainable future. Click here to download it for free.