UK government Environmental Audit Committee publishes climate responses of top 25 pension funds

Some funds “worryingly complacent’ in their response to climate change.

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The pension funds of some of the UK’s biggest financial services organisations including Aviva and Lloyds Bank have been judged by a government environmental audit to be ‘less engaged’ than peers on their response to climate change, with many saying they have no plans to report climate-related data based on the work of the government and Bank of England-backed Taskforce on Climate-Related Financial Disclosure (TCFD). The assessment by the UK government Environmental Audit Committee could be embarrassing to some of the organisations because of commitments they have made to climate change at a group level. In another awkward incongruency, the £730m scheme for the UK Parliament says it has no plans to report to TCFD either, despite the UK government having officially endorsed the TCFD’s voluntary recommendations. Despite that, the Parliamentarians scheme is considered to be ‘engaged’ in its overall approach to climate risk and investment issues, an improvement on a few years ago when it refused to reveal any information on its responses to ESG issues after being questioned by MPs.
Mary Creagh MP (Labour), Chair of the Environmental Audit Committee (EAC) said the responses to its questions from a minority of the pension funds were “worryingly complacent”.
In March, Creagh wrote to the 25 biggest UK pension funds managing a total of £555bn in assets, asking them to report on how they are managing climate risk. The remit of the cross-party EAC is to look at how government policy is working; in this case policy on trustee fiduciary duty and climate risk.
In a summary based on the funds’ responses to the letter published today (May 25), the EAC gauges that the retirement schemes of Aviva, the insurer that owns Aviva Investments, Lloyds Bank, and HBOS (formerly Halifax Bank of Scotland, now owned by Lloyds) are all considered to be ‘less engaged’ than peers amongst the top 25. According to the summary, the EAC saidthe three funds currently also had no plans to report based on the TCFD. Other schemes including the £32bn Electricity Pensions Fund, the £24bn scheme of BP, the oil giant, and the £12bn fund of Ford, the car manufacturer were also considered ‘less engaged’ with no plans to report to TCFD.
Pension schemes that were given a ‘more engaged’ mark by the EAC include those of the Universities Superannuation Scheme (£61bn), Barclays (£31bn), HSBC (£27bn), the Railways Pension Scheme (£25bn) and the BBC Pensions Trust (£16bn). All five say they are committed to reporting data based on the recommendations of the TCFD report.
One respondent – the £14bn West Midlands Pension Fund – has already published data in its 2017 Annual Report in line with the TCFD recommendations. Eight of the 25 schemes say they are considering how to respond to TCFD and ten say they have no current plans to do so.
The EAC split the pension fund responses into three categories:
‘More engaged’ means the fund is taking steps to assess and minimise exposure to the physical and transition risks from climate change and most have committed to – or are considering – TCFD-aligned reporting.
‘Engaged’ means the fund is making progress, acknowledges climate change as a risk, has some responsible investment policies in place, but shows less demonstration of this being implemented in specific investment decisions. Commitment to TCFD is weak, but some are considering it.
‘Less engaged’ funds have not considered climate change as a strategic risk and leave ESG issues to investment managers. There is little reported evidence of strategic input or oversight from the pension scheme’s governing body and they do not plan to report on climate risks and opportunities in line with
TCFD. Mary Creagh MP, Chair of the Environmental Audit Committee, said: “It is encouraging that a majority of the UK’s largest pension funds say they are taking steps to manage the risks that climate change poses to UK pension investments. But a minority of funds appear worryingly complacent. Pension funds should at least assess the exposure of their assets to the physical, transition and liability risks from climate change that will materialise during savers’ lifetimes.”

Click here to link to the table of responses and qualitative review of the Top 25 UK Pension Funds.DATA FROM SAMPLE OF 25 LARGEST PENSION FUNDS
Considered climate risk at Board level: 12
Listed at least one action on climate risk: 20
Discussed climate risk with actuary: 12
Committed to report in line with TCFD: 7
Considering whether to report in line with TCFD: 8
No plans to report in line with TCFD: 10
More engaged: 11
Engaged: 8
Less engaged: 6

Link to related article: Hugh Wheelan – The UK pensions industry has been hit by a storm of climate investment activity: click here

Mary Creagh MP, Chair of the Environmental Audit Committee (EAC), is speaking at the RI Europe Conference on June 5/6. Take a look at the agenda.