A third of pension schemes have set or are in the process of setting targets to reduce their exposure to climate-related risk, according to the ACA’s 2021 pension trends survey.
According to the report, despite one-third of pension schemes setting targets to reduce climate risk, there is a growing divide in pension scheme attitudes toward it. Almost one-third of those polled stated that they have no intention of setting goals for themselves. At the same time, four out of every five schemes expect their asset managers to engage in climate-related discussions with the companies they invest in.
The survey also found that 61 per cent of schemes have considered setting a target to reduce their exposure to climate risk, but 28 per cent have stated that they will not do so. Half of the 33 per cent of schemes include an emissions-based target, with 70 per cent of these being a net-zero target. 73 per cent of DB schemes have reviewed their sponsor covenant, and 78 per cent rely on asset managers to interact with the companies in which their scheme invests. As of July 2021, 41 per cent of schemes report that their members are more interested in ESG issues than they were two years prior.
ACA head of climate risk group Stewart Hastie says: “UK pension schemes are a massive influence on the asset management industry, including climate-related risks and opportunities that are identified, assessed and managed. It is hugely encouraging that a third of schemes are already setting climate-related targets. The examples set by these schemes taken together with continued government pressure to require TCFD disclosure across the chain of assets, managers and investors, will help to accelerate the number of schemes opening their eyes to the risks of climate change on long-term financial health and the need to do something now and not later.”
ACA chair Patrick Bloomfield says: “This important ACA survey shows that the pensions industry is rising to the defining challenge of our age. I’m hugely optimistic that the influence of COP26 and government regulation has taken us past a point of no return. Pension schemes are well underway, integrating climate risk into their strategies. However, I am concerned about a hardcore of trustees putting their heads in the sand on climate issues, which is putting their members’ retirements at risk.
“It’s important to remember that pension schemes exist to pay income to their members in later life, not to facilitate other social policy aims. Actuaries’ and trustees’ priority is to make sure that the transition to a low carbon economy doesn’t derail their scheme’s funding. This makes pension schemes influential accelerators of climate transition through climate savvy investments and influencing the businesses they invest in via their asset managers, but these actions must be driven by schemes’ own long-term interests.”