Do not underestimate your power

Against a seemingly insurmountable force, an individual can feel somewhat powerless says Elizabeth Pfeuti.

We may feel a challenge is too great, that we don’t know how to tackle it or even whether the support would be there for us if we did.

But do not underestimate the strength of cooperation and collaboration. Both can be important tools in a demanding situation.

This was the message to pension funds attending the Pension and Lifetime Savings Association’s Investment Conference in Edinburgh in March – with climate change firmly cited as the key challenge of our time.

From the opening and welcome from PLSA Chair Richard Butcher, who called on our industry to “go beyond minimum compliance”, through another six dedicated sessions on the program, climate change was a major theme.

And no wonder.

Over the last 12 months, regulatory and societal pressure has been building faster than ever before on companies to address their contribution to potentially catastrophic climate change.

Pension funds are, of course, implicated as some of the major debt and equity investors in the worst offenders. But they can also be part of the solution, too, given the right tools and support.

The argument of whether it is the “right thing to do”, is over, according to Caroline Escott, the PLSA’s Policy Lead for Investment and Stewardship, as delegates learned how climate risk can have a financially material impact on a portfolio.

Industries that are heavily reliant on coal, gas and other fossil fuels have seen company share prices slump in the recent past as governments and regulators get serious with their own carbon reduction initiatives. Holding these industries in a portfolio means members’ benefits may be directly impacted by trustees’ failure to act.

“Even if you don’t believe in climate change,” said Ms Escott, “believe that policy makers do.”

The Minister for Pensions and Financial Inclusion Guy Opperman, confirmed this message in his keynote speech: “If you are in the pensions and savings business, you start with the fundamental principle that you believe saving should be done for the longer term. If you aren’t addressing climate change, there is no longer term. It is the defining issue of the 21 Century.”

He urged trustees to direct their fund managers, consultants and other providers to quantify and manage their – and ultimately pension funds’ – climate risk.

“If you’re not getting those answers, you should dismiss them and move on to someone else,” said Mr Opperman. “Do not underestimate your power.”

It seems that with great power really does come great responsibility, but without guidance on how to wield it practically, this power may not be accurately or efficiently used.

Therefore, the sessions and panel debates at last week’s conference offered practical help for trustees to engage with their responsibility and power to effect change.

Investors, lawyers and specialist consultants gave advice and suggestions for those less advanced on their climate risk journey than others, including the PLSA-backed guide to completing Task Force on Climate-related Financial Disclosures.

There is a lot to achieve, and not much time left, but by moving together and supporting each other, we have the power to do it.

For a full run down of the ESG and climate change related content at the PLSA Investment Conference, see next month’s Viewpoint magazine.