Katharina Lindmeier: Should schemes tackle climate change?

We’ve often been led to believe that pension scheme members are only interested in the return on their investment, not about how their money is invested.

On the contrary, recent survey data from YouGov*, commissioned by Nest, paints a very different picture of what pension savers care about. Even during the pandemic, when workers’ jobs hang in the balance, people are worried about the impact of climate change on their lives and futures.

• Four in five adults in the UK believe that climate change must be taken into account on our way to economic recovery from coronavirus.
• 65% of pension savers believe that their pensions should be invested in a way that tackles climate change.

Through our member surveys, we have discovered that the vast majority of pension scheme members are, after all, interested in how their money is invested. And so they should be. Climate change presents one of the biggest financial, environmental and societal challenges of our times. It is a serious threat to both the quality of pension savers’ lives in retirement as well as their investment returns. Pension schemes that don’t address this in their investment strategies will be exposing their savers’ long-term investment returns to great risks.

This is why, in July 2020 we launched our new Climate Change Policy, in which we laid out our plans to align Nest with the goals of the Paris Agreement. That is, to keep global temperature rises within 1.5°C above pre-industrial levels by reaching net zero global CO2 emissions by 2050 or sooner. In order to meet this goal, we expect to halve carbon emissions in our portfolios by 2030.

If we don’t meet the goals of the Paris Agreement, we could experience catastrophic physical impacts from climate change, such as 48°C heatwaves in London and 40% more floods in cities like York and Leeds by the end of the century.

Our decision to become net-zero has been backed by years of research both within the climate change sector and the financial industry. Consideration of environmental, social and governance (ESG) risks ensures better risk- adjusted returns for any investor.

Supporting companies involved in “green” activities such as renewable energy generation is a great way to start, but it’s not enough. It’s also important to use pension funds’ powers by engaging with companies to encourage them to better their practices and to keep them accountable. Nest’s aim is to actively pressure companies to align with the Paris Agreement goals and to divest from companies when they’re showing little progress in this remit.

Stakeholder engagement has proven to be a successful tool in creating a positive impact. Only a few months back, Nest was one of the

supporters of the ShareAction-led shareholder resolution asking Barclays to align its business activities with the goals of the Paris Agreement and attended a meeting with the bank’s Chairman to discuss its approach to climate change. Not long after, Barclays announced their plan to become a net-zero bank by 2050. This is a great result for all our members and as it turns out, hearing about how their money is invested for good is exactly what most pension savers are interested in.

This means that tackling climate change and other ESG issues is both the right thing to do and could be a great engagement tool as well. Not only for pension funds themselves, but also for employers to communicate to their workers.

Climate change is happening and it’s likely to continue to be one of the most important issues we’re faced with. Pension providers that don’t take this into consideration, don’t only risk savers’ money. They also risk their future. Members want and deserve to know what we’re doing about it.