Company pensions clash with climate messages

Written by Rebecca Jones on 13th Feb 2019

The majority of the UK’s biggest companies are leaving staff pensions exposed to risks associated with climate change while publicly backing green initiatives, according to shareholder group Share Action.

The firm found that, while many of the UK’s biggest companies openly support climate change initiatives, they are leaving their pension funds invested in companies actively contributing to global warming – threatening the safety of staff savings over the long-term.

ShareAction surveyed 25 of the UK’s top 100 companies that have some of the largest defined contribution pension schemes to assess how they protect employees’ savings against climate-related financial risks.

The group says 15 schemes actively participated in the research process, covering approximately one million workers and £17.5 billion of pension savings.

Shockingly, it found that only two – 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.

Paul Britton, Research Officer at ShareAction and lead author, said: “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.”

Corporate responsibility clashes with pensions 

Conversely, the research finds that 13 of these 15 companies are backing initiatives to address climate risks, such as the Science-Based Targets Initiative and the Taskforce on Climate-related Financial Disclosures.

It said that National Grid, for example, has set ambitious public targets to reduce the company’s carbon footprint by 80 per cent 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.

Schemes that did not participate in the research, included the UK Shell Pension Plan and BAE Systems DC Retirement Plan, leave their employees in the dark on how they manage climate risks relative to others in the corporate sector.

According to Share Action, a member of Shell’s DB pension scheme has threatened legal action over their lack of climate risk disclosure.

The report finds that while eight of the ten employer-sponsored trusts discussed climate-related risks with their investment consultants, only three had gone on to conduct climate stress-testing of their investments.

Responding to the report findings, Ruston Smith, Chairman of the Tesco Defined Contribution Governance Committee, said: “The quite rapid changes we can see influencing our planet emphasise the increasing importance climate change and ESG factors will, among other factors, continue to have in the long term investment of retirement savings.

“Regular training, monitoring and intelligent investment are important in delivering good outcomes for current and future generations of members who rely on their retirement savings in the later years of their life.”

Climate change threatens future generations

A school leaver or graduate joining the workforce today can expect to retire in the 2060s. However, the impacts of climate change on their savings depends on actions taken in the coming decade.

The world’s leading climate scientists have warned 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.

ShareAction says it hopes to encourage and support UK employers to better protect their staff against climate risks and to benefit from green growth opportunities. Positively, the researchers found that six of the surveyed schemes were considering further action to address climate-related risks.

Mary Creagh MP, Chair of the 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. But this report shows too many are lagging behind and failing to take these risks seriously.

“We need to fix the incentives that encourage short-term thinking. Long-term sustainability must be factored into financial decision making.”

Want take control of your retirement savings? Check out our Top Five Ethical Pensions Funds for 2019

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