Pension funds 'still some way from climate change integration'
GLOBAL - Pension funds still have a long way to go when it comes to integrating climate change into their investment management strategy, according to Danyelle Guyatt, principal at Mercer's responsible investment team.
She acknowledges momentum and awareness of climate change by pension funds has steadily risen over recent years, but said: "A lot of them are still not sure what they can do beyond investing, for example, a few percent in clean tech."
Guyatt continued: "There are currently only a handful of pension funds globally that take strong action in terms of actually investing their money in ways that intend to curb climate change. Few pension funds engage with governments, companies or indeed probe their active fund managers on climate change and convey what they expect from them, which means that fund managers tend to be left to their own devices. But our recent research - Carbon Risks in UK Equity Funds - has shown that fund managers are not proactive on climate change."
The research conducted in association with WWF and Trucost - and which exposed a seven-fold difference in the carbon footprints of UK institutional equity portfolios - found climate change to be of little importance in fund managers' investment decisions.
The main reasons cited were a lack of confidence in government polices to address greenhouse gas emissions - despite emerging greenhouse gas regulations in major economies such as Europe and the US - along with short-term pressures to generate returns and a lack of standardised costing and reporting frameworks for company emissions.
"On the passive side, pension funds can start to look at some of the new lower carbon indices and the products that have been launched, as well as utilise their voting and engagement levers," said Guyatt.
"We have seen some movement in that direction but not much compared to the total size of pension fund assets. Some of the leading pension funds have been early movers on thematic funds, but the bulk of the industry has not yet looked at these options in a serious way. And even on engagement, which is quite well utilised on governance issues, few pension funds are pushing for higher standards on climate change," she added.
Mercer is set to launch a project later in the summer which evaluates the implications of climate change for strategic asset allocation.
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