Pension funds are not paying enough attention to climate change.
According to the British NGO Asset Owners Disclosure Project (AODP), which on Monday published a ranking of the 100 largest public pension funds in the world, over 60% of these funds have little or no strategy on climate change. In total, they have invested only $90bn in low-carbon assets, representing less than 1% of their combined assets. The Intergovernmental Panel on Climate Change (IPCC) has previously estimated that an annual investment of $1.1tn will be needed to finance the transition to a low-carbon economy. Only 10% of the pension funds assessed by the AODP have introduced policies to exclude coal from their investment portfolio.
This is an important issue. Pension funds have fiduciary obligations to their clients. They must act in their clients’ best interests, and that means factoring in the climate-related risks likely to decrease the value of their investments. Felix Nagrawala, AODP Analyst, said: “Pension funds have a duty to serve the long-term interest of their members, which isn’t being met if the money they invest is depleted along with the health of the planet.”
A few standouts in the US
Although Europe’s pension funds have more of a climate change strategy than their US counterparts, California and the State of New York house the leading AAA-rated funds. According to the study, 24% of European funds and 4% of US funds have attained at least an A rating.
The AODP highlights the lag of the three largest British funds (USS, Railpen and Electricity Supply Pension Scheme) compared with the rest of Europe. Earlier this year, MPs said these funds were “worryingly complacent” on climate risks.