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ESG

Majority of U.K.’s largest pension funds engage on climate change risk

Level of engagement varies across 25 biggest plans; 6 deemed 'less engaged'

The majority U.K.'s 25 largest pension funds are engaged when it comes to climate change risk to their portfolios, but a minority are "worryingly complacent," finds a House of Commons committee.

The Environmental Audit Committee has published responses from 25 pension funds, representing more than 500 billion ($677 billion) in assets, on their approaches to climate change risk.

The work forms part of the committee's green finance inquiry, looking into how the U.K. can mobilize the investment that is necessary to meet climate change targets and include sustainability into financial decision-making.

Funds were also asked to outline whether climate change risk is incorporated into investment decision-making.

The committee categorized pension funds as being "more engaged," "engaged" or "less engaged," and also asked funds to disclose whether they had discussed climate risk at the board level, with their actuarial adviser and if they report or plan to report in line with guidance by the Financial Stability Board's Task Force on Climate-related Financial Disclosures.

Among the 25 plans, 20 said they had taken at least one action related to climate risk, 12 had considered climate change risk at board level and 12 had discussed climate risk with their actuary.

When it came to TCFD guidance, 10 said they had no plans to report in line with the recommendations, eight are considering doing so and seven are committed to reporting.

Eleven of the 25 plans were categorized as more engaged, eight were engaged and six less engaged. Those more engaged are taking steps to assess and minimize exposure to the physical and transition risks from climate change, the committee said. The engaged group are making "some progress," acknowledging that climate change is a risk but is often viewed as "one of the many environmental, social and governance factors they had to contend with." The less engaged group "has not formally considered climate change as a strategic risk. For this group, climate change was spoken of as one of a number" of ESG factors that money managers are left to manage. "There was little reported evidence of strategic input or oversight from the pension scheme's governing body," said the committee.

"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," said Member of Parliament Mary Creagh, chairwoman of the Environmental Audit Committee, in a statement accompanying the responses. "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."

The U.K.'s largest pension fund, the 60.6 billion Universities Superannuation Scheme, London, was categorized as "more engaged," as were:

  • the 49 billion BT Pension Scheme, London.
  • the 44.1 billion RBS Group Pension Fund, Edinburgh.
  • the 31.8 billion Barclays Bank U.K. Retirement Fund, London.
  • the 27.3 billion HSBC Bank Pension Trust (U.K.) Ltd., London.
  • the 25.5 billion Railways Pension Scheme, London.
  • the 21.3 billion Greater Manchester Pension Fund, Manchester.
  • the 19.7 billion Strathclyde Pension Fund, Glasgow.
  • the 15.8 billion BBC Pension Trust Ltd., London.
  • the 14.3 billion West Midlands Pension Fund, Wolverhampton.
  • the 13.6 billion West Yorkshire Pension Fund, Bradford.

Those categorized "engaged" were:

  • the 16.8 billion National Grid U.K. Pension Scheme, London.
  • the 16 billion British Airways Pension Scheme, London.
  • the 16 billion Shell Contributory Pension Fund, London.
  • the 15 billion British Steel Pension Scheme, London.
  • the 13.4 billion Rolls-Royce Pension Scheme, London.
  • the 13.2 billion Tesco Pension Scheme, Cheshunt.
  • the 13 billion BAE Systems Main Scheme, London.
  • the 11.4 billion Mineworkers' Pension Scheme, Sheffield.

The six "less engaged" pension funds were:

  • the 31.9 billion Electricity Pensions Trustee Ltd., London.
  • the 24.5 billion BP Pension Scheme, London.
  • the 19.8 billion Lloyds Bank Pension Scheme, London.
  • the 14.8 billion HBOS Final Salary Pension Scheme, London.
  • the 14.4 billion Aviva Staff Pension Scheme, London.
  • the 12 billion Ford Pension Fund, London.