Some U.K. pension funds are "worryingly complacent" when it comes to incorporating climate change risk in their investment strategies, according to a U.K. parliamentary committee.
Institutional investors are coming under increased pressure to take climate risk seriously when making investment decisions because of the long-term financial risks that climate change represents. The Environment Audit Committee asked the 25 largest funds in Britain how they are managing climate change, and split their responses into three categories — "more engaged," "engaged" and "less engaged."
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Eleven were considered "more engaged," meaning they are lowering their exposure to climate change risks and support the voluntary framework set out by the G20's Task Force on Climate-related Financial Disclosures, or TCFD. Eight were deemed "engaged," with some responsible investment policies in place, but they are not necessarily applying them to specific investment decisions.
Five funds, including Aviva PLC's staff pension scheme and HBOS PLC's final salary pension scheme, were in the "less engaged" group, meaning they have not formally considered climate change as a strategic risk. There was little evidence of strategic input from the pension funds' governing bodies, and they do not plan to report on climate risks in line with recommendations on such disclosures.
An assessment on a fund belonging to Lloyds Banking Group PLC was based on incomplete information and was removed from the list, giving a total of 24 responses.
"It is encouraging that a majority of the U.K.'s largest pension funds say they are taking steps to manage the risks that climate change poses to U.K. pension investments," Mary Creagh, chair of the Environmental Audit Committee, said.
"But a minority of funds appear worryingly complacent. Pension funds should at least assess the exposure of their assets to the physical, transition and liability risks from climate change that will materialize during savers' lifetimes," she said.
The HSBC Bank Pension Trust (UK) Ltd., the RBS Group Pension Fund and the Barclays Bank UK Retirement Fund were all considered to be "more engaged."
The committee said 12 pension funds had discussed the investment risks to climate change at board level, while 20 funds had listed at least one action taken to tackle climate change risks. Seven funds were committed to report in line with the TCFD, while eight were considering whether to do this. Nine had no plans to report in line with TCFD.
The TCFD published its voluntary framework in June 2017 and recommends that companies disclose information related to climate change in governance, strategy, risk management, targets and metrics to provide investors with financial details that take climate risk into account.

