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UK pension funds warned of lawsuits over climate risk policies

Some of the biggest pension funds in the U.K. were warned that they could face lawsuits from their members unless they adequately address the financial risks of climate change.

Lawyers at environmental campaign group ClientEarth wrote to 14 pension funds Aug. 10, asking trustees to detail the steps they are taking to mitigate climate-related risks to their portfolios.

"We are concerned that you, as scheme trustees, may be failing to take sufficient steps to address climate risk ... therefore failing to manage the scheme's investments in a manner consistent with members' best interests," the lawyers wrote to trustees including at the BP Pension Fund, the National Grid UK Pension scheme and the Tesco Pension Fund. "Climate change is now widely acknowledged as a potentially material investment risk, and you are expected to consider the exposure of the scheme's assets and scheme sponsor to climate risk when discharging your duties as a fiduciary."

The group is raising the prospect of litigation similar to that in a case in Australia, where the Retail Employees Superannuation Trust was taken to court by one of its members in July for not disclosing climate risk policies — the first time a Superfund member has taken a fund to court over the issue, according to Environmental Justice Australia, whose lawyers are supporting the suit.

ClientEarth's action comes after the U.K. Parliament's Environmental Audit Committee found in May that while the majority of the country's top 25 funds are taking steps to manage climate change-related risks, some "appear worryingly complacent." Its recommendations, part of a report on green finance, included making it mandatory for listed companies and asset owners to report their exposure to such risks by 2022.

"We want to see mandatory climate risk reporting and a clarification in law that pension trustees have a duty to consider long-term sustainability, not just short-term returns," committee chair Mary Creagh MP said at the report's release in June.

The European Commission is seeking advice on how to integrate environmental, social and governance factors into a number of EU rules, including those regarding the investment fund market.

ClientEarth said a report it commissioned from environmental advisory firm Sustineri shows that 67% of 30 asset owners within the Organization for Economic Cooperation and Development region, excluding the U.S., representing approximately 10% of global assets under management, have divestment policies for companies with high emissions, but that private pension schemes lag behind public schemes and sovereign wealth funds when it comes to addressing climate risks.