Companies with feelgood policies on the environment have been accused of double standards over their pension funds.
Research by ShareAction has found a disconnect between what big companies have committed to doing on climate change and the protections against climate-related financial risks given to their employees’ pension savings.
The charity says climate change poses a “systemic threat to the global financial system”, and pension savings need to be actively protected against this risk.
It surveyed 25 FTSE-100 companies with some of the largest defined contribution (DC) pension schemes, and the 15 which participated in the research process cover around one million workers and £17.5bn assets under management.
Only two schemes, the HSBC Bank Pension Scheme and the RBS Retirement Savings Plan, have changed their default investment strategies to reduce the carbon exposure of staff pensions.
Yet 13 of these 15 major UK companies are backing initiatives to address climate risks such as the Science-Based Targets Initiative and the Taskforce on Climate-related Financial Disclosures.
National Grid, for example, has set ambitious public targets to reduce the company’s carbon footprint by 80% by 2050. However, the pensions savings of National Grid employees working to implement this commitment remain stuck in a business as usual investment fund that does little to manage the financial risks of climate change. Non-responding schemes, including the UK Shell Pension Plan and BAE Systems DC Retirement Plan, [also] leave their employees in the dark on how they manage climate risks relative to others in the corporate sector.
Climate change = corporate change?
Positively, the researchers found that six of the surveyed schemes were considering further action to address climate-related risks.
A school leaver or graduate joining the workforce today can expect to retire in the 2060s, so it is action taken over the next decade that will influence how climate change will affect their savings.
Leading climate scientists believe there are only 12 years for global warming to be kept to a maximum of 1.5C, beyond which even half a degree will significantly worsen the risks of financially damaging droughts, floods, extreme heat and disruption for millions of people.
What do MPs and experts say?
The Climate Reality Project
Paul Britton, research officer at ShareAction and lead author, said:
It’s no secret that companies taking credible action on climate and other sustainability issues are doing a better job of hiring and retaining talent. That these employees’ pensions are exposed to unmanaged climate risks is wrong and will send alarm bells ringing. These schemes will pay pensions deep into the 21st century. By more actively managing climate risks in their staff schemes, employers can protect employees for the long-term while demonstrating joined-up thinking on corporate sustainability commitments.
Mary Creagh MP, chair of the all-party Environmental Audit Committee, said:
Pension funds have a duty to act in the best interest of their beneficiaries and take account of long and short-term climate risks. We need to fix the incentives that encourage short-term thinking. Long-term sustainability must be factored into financial decision making.
And Ruston Smith, chairman of the Tesco Defined Contribution Governance Committee, said:
The quite rapid changes we can see that are influencing our planet and global environment emphasises the increasing importance that climate change and ESG factors will continue to have, as part of a number of factors, in the long term investment of retirement savings. Climate change, and its implications, are a key influence on future business strategy and therefore creates both investment risks and opportunities.
Last autumn ShareAction and Young Money Blog reported that the nine providers of pensions for 10 million auto-enrolment workers were largely failing to prevent investments in companies that made toxic weapons, harmed the environment or dodged their taxes. It also found the pensions industry was in danger of alienating young workers through its uninspired and out of touch messages.