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Pension managers, trustees must have 'thoughtful response' to climate change

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Pension funds are ignoring the risks posed by climate change and must become “major players” in combating its impact, a new campaign backed by NGOs and unions has said.

Launching a report examining how funds can limit their exposure to climate risks, campaign group ShareAction noted that the “financial and wider macroeconomic risks of climate chance” would affect younger pension savers.

“Fiduciary investors will wish to ensure they are looking after these savers’ long-term best interests,” the report adds.

The campaign called on investors to examine their exposure to high-carbon companies either through engagement or stock selection, and noted how oil and gas firms were increasingly investing in exploration projects to find new resource fields on the assumption that prices would continue to increase.

“Yet these assumptions may no longer hold,” the report says. “Some analysts are now forecasting the price of oil to be within the range of $80-90 (€58-65) per barrel by the end of the decade, with demand to peak by 2020.”

It refers back to a previous ShareAction report noting that regulatory action on climate change might mean fossil fuels could no longer be burned to the current extent.

“As prudent fiduciary investors, pension funds should request that their fund managers assess the ‘stranded asset’ risk in oil and gas companies’ project line-up,” the report says. 

“They should support calls for reduced capital allocation to high-cost/low-return projects in favour of returning money to shareholders or reallocation to less risky projects.”

Catherine Howarth, chief executive at ShareAction said: “The pensions industry is burying its head in the sand -– just as it did in the run-up to the financial crisis.”

She added that there was “compelling evidence” provided by the Intergovernmental Panel on Climate Change that the planet was warming, and that this demanded “a thoughtful response by trustees and investment professionals”.

Howarth’s counterpart at WWF UK, David Nussbaum, seconded the calls for action by investors.

“Investors need to play their part, recognising that continuing to invest in high-carbon assets stores up huge financial, economic and social risks,” he said.

“The successful businesses of the future will be the ones that value, manage and restore natural assets and limit their exposure to risks such as those presented by a changing climate.”

Readers' comments (2)

  • The Law Commission is currently reviewing the extent to which trustees can consider SRI when making investment decisions. Currently, however, they are largely bound by Cowan v Scargill:

    http://en.wikipedia.org/wiki/Cowan_v_Scargill

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  • Yes, I probably should have linked back to the Law Commission review, which we've covered a fair bit since it got underway.

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