A major report published today by the UK’s Climate Change Committee (CCC) is a “timely and important wake-up call” that the government must act on now to ensure the country’s future resilience, according to leading pension industry figures.
The document, which runs to more than 500 pages, concludes that the UK is unprepared for the physical impacts of climate change on citizens, the economy and the financial system.
The damage caused by extreme weather events “puts stress on public and private capital and drives up insurance claims, loan defaults and volatility in financial markets”, the CCC said, adding that global warming can also make workers less productive.
The report noted climate change’s disruptive impact on global supply chains, which could push up the cost of food and commodities – and adversely affect the rate of inflation.
Climate impacts
“Globally, physical climate impacts could affect up to 6% of the value of physical assets in S&P’s international stock indices,” the CCC stated.
“This could have severe impacts in the UK due to the international exposure of the UK financial sector and its substantial contribution to GDP, exports and price stability.”
The report further said that the government needed to take “critical action” to address the risks posed to financial institutions and the broader market from physical climate risk. It identified macroeconomic stability as another urgent area for concern.
Faith Ward, chief responsible investment officer at Brunel Pension Partnership, described the CCC’s report as “a timely and important wake-up call”.
“The UK’s financial system is materially exposed to physical climate risks, and adaptation is lagging badly,” said Ward, who is also the chair of the Institutional Investors Group on Climate Change.
‘Take steps now’
James Alexander, chief executive officer of the UK Sustainable Investment Forum (UKSIF), said the risks identified by the CCC were “manageable” but warned that the UK government “must take steps now to ensure investors remain confident in the UK’s resilience over the coming decades”.
In 2024, the UK government commissioned its Transition Plan Taskforce to advise on how to introduce more effective, forward-looking climate disclosure rules for the private sector.
As part of the project, a working group including Ward and a number of large institutional investors produced guidance on climate adaptation and resilience.
“The investment case for acting is compelling,” Ward told IPE.
“Around £11bn [€12.7bn] a year of public and private investment is needed to get the UK on a resilient path. “Pension funds, as long-term stewards of capital, have both the incentive and the responsibility to help mobilise it.”
