Responsible Investor

Climate change investing for pension funds – commercial decision or altruism?

By acting on climate change, schemes can help to protect returns from existing and future investments.

Around the world pension schemes control trillions in assets and have the ability to influence the behaviour of businesses. Some schemes, particularly larger ones, such as the US$188bn (€148bn) CalPERS scheme in the US or the £29bn Universities Superannuation Scheme (USS) in the UK, take this responsibility seriously and engage positively within a social, economic and ethical framework. Others, often smaller schemes without the resources or appetite for activism, invest with the sole objective of delivering the best possible financial return for their members without focusing as closely on how corporate profits are generated.
Now that climate change is regarded by many as the single most important issue facing humanity, pension funds have the power to make a real difference to the outcome. If pension schemes invest in businesses which are actively combating climate change and use their influence to help the polluters reduce their carbon emissions it will mark an important step towards a more sustainable future. On the other hand, if the majority of schemes only focus on maximising returns without regard for how they are generated, then the planet will continue to suffer.

Do pension schemes have any responsibility at all to invest altruistically or should commercial returns be their only objective? A pension fund exists to pay a retirement income to its members and to achieve this it needs to direct its assets towards investments which will lead to be best possible financial outcome. Any pension fund which refused to profitably invest in leading global companies solely on the grounds that they were environmentally damaging could be open to criticism and challenge from its members. Fortunately, the decision is no longer a polarised argument between altruism and commercial returns. As long-term investors, pension schemes are providing the risk capital which enables companies to make long term investment decisions. Returns from these investments may be affected by different climate conditions, such as rising sea levels, for decades into the future. By acting on climate change now, pension schemes can help to protect the returns from their existing and future investments. In addition, climate change investing potentially offers better returns to pension schemes than a traditional portfolio as companies which will benefit from addressing climate change are likely to be strong performers in the coming

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