Pension funds largely ignoring climate risks

The world's largest pension funds have focussed efforts on carbon engagement, but have ignored other important approaches to climate risk management

Just 13% of assets in the world’s largest public pension funds have been formally assessed for their exposure to climate risk.

That’s the finding from a new survey conducted by the Asset Owners Disclosure Project, which reviewed the savings collectively managed by the world’s largest 100 public pension funds.

The research found that some £7.5 trillion ($9.8 trillion) of assets were currently unprotected from any future risks resulting from global warming and noted that only 10% of these pension funds have made a formal commitment to align their portfolios to the goals of the Paris Agreement.

“The large public pensions funds we assessed are universal owners of our global economy. Though almost a third have identified the physical and transition risks facing their portfolios, their policies on fossil fuels and engagement pale in comparison to challenge we face,” said Peter Uhlenbruch, investor engagement officer at the AODP.

“As a sector, pension funds need to summon the courage to transform this knowledge into action, through taking real steps forward in their company engagement and asset allocation to ensure the retirement pots of their beneficiaries are truly protected and preserved.”

These latest findings come just a week after Schroders published its latest Quarterly Sustainable Investment Report, which warned that investors needed to do much more to address the risks from climate change that are still lurking in portfolios.

“We are not making enough progress on tackling this issue and are just storing up risk for the future,” the company’s global head of Stewardship, Jessica Ground, said in the report.

“On the current trajectory the potential impact from climate change through rising sea levels, reduced water supply, and ocean acidification is substantial, and largely unaccounted for in conventional risk measurement models.”

The AODP research concluded that half of those pension funds analysed had undertaken some form of engagement with high-carbon companies, but noted that these efforts had focussed predominantly on improving levels of disclosure.

“Results indicate an ‘escalation gap’, with only a minority of pension funds (18%) escalating their engagements in case of failure, such as by using votes at AGMs, co-filing key climate resolutions, or setting time-bound objectives,” the researchers concluded.