Editorial: These days it is hard to deny that climate change is a material risk to a wide range of investments.
The Environmental Audit Committee’s Greening Finance report published earlier this year noted there is growing recognition that climate change will pose financial risks over the coming decades. It highlighted that “in the 40 to 50 years it will take today’s young people to reach retirement age the projected rise in sea levels and the increased frequency and intensity of extreme weather events will have economic consequences for a range of investments”.
Unfortunately, not everybody can keep up with the changing approach to environmental, social and governance risks across the world. Smaller pension schemes in particular are struggling.
They lack the governance, investment choice and understanding required to properly engage with ESG factors, a Pensions Policy Institute paper has shown.
Governance is certainly a problem for smaller schemes. The Pensions Regulator recently published research showing that particular areas of weakness for some defined benefit pension funds included a failure by trustees to include appropriate contingency planning within their risk management frameworks.
Attitude also seems to be an issue. The report showed widespread support for ESG, but it also included quotes showing that some saw it as “a wishy-washy, altruistic approach”.
Whether the problem is confusion, lack of governance or simply apathy towards something some people see as “altruistic”, depends on the specific scheme. More information and education would not go amiss. This could be in the form of access to better data, for example.
Sometimes, enforcement is the only answer. Schemes will be required to publish more detailed statements of investment principles from October 2019. These will address financially material ESG factors, such as climate change. Schemes will also be required to report on their stewardship policy.
The move was certainly seen as a step forward, but in terms of whether on not it will help to raise awareness, boost action and clear up that confusion among smaller pensions schemes, only time will tell.
Sophia Imeson is associate editor at Pensions Expert. You can follow her on Twitter @SophiaImeson and the team @pensions_expert.
