ShareAction’s Paul Britton points to new research showing the disconnect between what FTSE 100 companies are doing on climate change and the carbon exposure of employee pension funds

It’s no secret that companies are taking more credible action on climate change and other sustainability issues. It’s also no coincidence that these are the ones doing a better job of hiring and retaining talent. However, new research has shown that companies that boast a number of initiatives to reduce their carbon emissions aren’t paying the same attention to the way they invest their staff’s pensions.

We recently released a report, called Will Employees Benefit? Protecting Corporate Pensions Against Climate Change showing that FTSE 100 pension schemes in the UK leave staff savings highly exposed to climate risks. The research identifies a disconnect between what big companies have committed to doing on climate change and the protections given to their employees’ pension savings.

As a staff member, your company will enrol you in a pension that you will both contribute to every month. If you’re a millennial, you’ll be paying into your pension for decades to come and won’t redeem it until deep into the 21st century.

Only HSBC and RBS automatically put their employees into pensions that properly take account of climate change investment strategies

But environmental and economic prospects don’t look so promising deep into the 21st century if we don’t get a proper handle on climate change. As a systemic risk, it will touch every part of our lives, including our finances.

Investing your pension heavily in fossil fuels is not only a miserable way to make money; it risks becoming unprofitable in the future when you finally come to draw your pension because of regulations to curb carbon emissions and the competition from cleaner energy businesses.

The world’s leading climate scientists have warned there are only 12 years for global warming to be kept to a maximum of 1.5°C, beyond which even half a degree will significantly worsen the risks of financially damaging droughts, floods, extreme heat and disruption for millions of people.

HSBC's pension scheme takes account of climate change. (Credit: Terry Bouch/Shutterstock)

That’s what we mean about protecting staff pensions from the risks of climate change.

ShareAction surveyed 25 FTSE 100 companies with some of the largest pension schemes to assess how they protect employees’ savings against the climate-related financial risks mentioned above. Fifteen schemes participated in the research process, covering approximately one million workers and £17.5bn assets under management.

Of the schemes assessed, only the HSBC Bank Pension Scheme and the RBS Retirement Savings Plan automatically put their staff into a pension scheme that properly takes account of climate change investment strategies to reduce the carbon exposure of staff pensions. You can see how the others did here.

What's concerning is the 10 schemes that did not respond to the survey including the UK Shell Pension Plan and BAE Systems DC Retirement Plan

However, the research finds that 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.

We really welcome the transparency of schemes that participated in the research, and their interest in getting to best practice. What’s concerning is the 10 schemes who did not respond to the survey, including the UK Shell Pension Plan and BAE Systems DC Retirement Plan. They leave their employees in the dark on how they manage climate risks relative to others in the corporate sector.

Mary Creagh MP, chair of the Environmental Audit Committee, welcomed our report, saying: “Pension funds have a duty to act in the best interest of their beneficiaries [savers] 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.”

Ruston Smith, chairman of the Tesco defined contribution governance committee, said: “Climate change, and its implications, are a key influence on future business strategy and therefore creates both investment risks and opportunities. Regular training, intelligent investment, monitoring and effective stewardship 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."

Paul Britton is research officer for pensions with ShareAction

Main picture credit: A Katz/Shutterstock
ethical investing  ShareAction  pension funds  HSBC  National Grid  climate change  fossil fuels 

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