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Pension funds should address climate change as part of fiduciary duty: UNPRI

Report looks at case studies of leading global pension funds on climate change theme.

Pension funds should be pursuing investment strategies to mitigate the potential systemic risk of climate change and profit from low carbon capital opportunities as part of their fiduciary duty, according to a report produced by the United Nations Principles for Responsible Investment Initiative (PRI) and launched as part of Ban Ki-Moon, UN Secretary General’s ‘Caring for Climate’ research series. The report says institutional investors with long-term investment horizons and broad allocations across the economy will be exposed to serious investment risks from unmitigated climate change unless they counteract. It said: “Prudent pension funds have good reason to pursue cost-effective strategies to support climate change mitigation and adaptation. Arguably, this may even be part of their fiduciary duty.” The report notes that the Stern Review on climate change concluded that worst-case scenarios in the UN’s third Intergovernmental Report on Climate Change could trigger a depression-level economic collapse, wiping 20% permanently from global GDP by 2100. It also argues that institutional investors are not yet set up to profit from potentially lucrative low carbon investment opportunities. The report notes that the International Energy Agency has estimated that $10 trillion in capital, much of it expected to be private, will be required by 2030 to maintain carbon dioxide emission levels at a stable 450 parts per million in the atmosphereand avoid potentially dangerous climate change consequences. Notably, it says investors need to collectively influence public policy to correct what it says is an inability of markets to properly price climate change-related systemic risk. In addition, it argues that investors should prompt governments to regulate pollution with high and sustainable carbon prices that would promote large-scale institutional investment into carbon markets. James Gifford, executive director of the PRI said: “The role of investors should not be underestimated in addressing the climate challenge. As providers of capital and owners of companies they have a duty and an opportunity to act against climate change and protect the long-term value of their portfolios.” The report, authored for the PRI by Craig Mackenzie and Francisco Ascui from the University of Edinburgh Business School, says that investors should also build climate change factors into their investment processes, engage as shareholders to improve company performance and disclosure on climate change and work collaboratively with policymakers on international climate policy ahead of December’s Copenhagen international summit to find a successor to the Kyoto Protocol. It looks at case studies of large global investors including CalPERS in the US and ABP and PGGM in the Netherlands that have already introduced climate change strategies.
Link to report