Nearly two-thirds of the largest global public pension funds, with a combined $11 trillion in assets, are at risk of breaching their fiduciary duties related to climate change, according to a report by the Asset Owners Disclosure Project, a unit of responsible investment advocate ShareAction.
The report, "Pensions in a changing climate," found that 63% of pension funds provide little to no information on the financial consequences of climate change to their portfolios, which puts them at risk of breaching their fiduciary duties, the AODP said.
Having assessed the world's 100 largest public pension funds' response to climate-related risks against the Task Force for Climate-related Financial Disclosures' recommendations, the AODP found the 366.9 billion Swedish kronor ($40 billion) AP4, Stockholm; €36 billion ($42 billion) Fonds de Reserve pour les Retraites, Paris; $209.2 billion New York State Common Retirement Fund, Albany, were the top three in the ranking, receiving AAA, AAA and AA ratings, respectively.
"I am proud that New York state's pension fund has once again been recognized by AODP as the leading U.S. investor in the battle against climate change," said state Comptroller Thomas P. DiNapoli, trustee of the New York state pension fund, in a news release. "Climate risk poses a major threat to long-term value, but mitigating that risk presents investment opportunities and is key to our decision-making and our engagement with portfolio companies. Global investors are helping build a lower-carbon economy, regardless of the current administration in Washington."
U.K. pension funds lagged their European peers, with no U.K. pension fund receiving a rating above CCC. U.S. and Australian pension funds reported the largest drop in ratings compared to last year. The $56.2 billion New York City Employees' Retirement System's rating fell to CC from BBB a year earlier. The $62.1 billion University of California Retirement System, Oakland, and A$65 billion ($46.7 billion) UniSuper, Melbourne, Australia, both fell to CCC from A and BBB, respectively.
Pension funds with little to no information on climate-change risks might be exposed to heightened litigation risks, AODP said. Global public pension funds are collectively investing $90 billion in low-carbon technology, which represents less than 1% of their combined assets and is below the annual investment of $1.1 trillion per year that is required to facilitate the transition toward a low-carbon economy, the report said. In addition, only 10% of the assessed pension funds have a policy to exclude coal from their investment portfolio.
Asset owners were rated from the highest, AAA, to the lowest, D. Pension funds that showed no evidence of responding to climate change received an X rating.