Pensions and the climate crisis: playing our part

Pension funds continue progress towards net zero, reports Mark Smith, but more input is needed from government.

The pensions sector has an important role to play in ensuring the world meets its commitment to minimise global temperature increases to 1.5°C, and in leading the rest of the financial sector to this goal.

A recent survey of PLSA members showed 6 in 10 pension funds already have net-zero alignment in place (60%). But while we expect many more will choose to do the same in the near future, a majority believe there are still obstacles the government should help to remove in order to assist their work to address climate risk.

More than half (56%) of the survey respondents said the government should be doing more to help investors go further to address climate risk. Over half (53%) also believe the government could do more to remove obstacles to assist pension funds, although 1 in 10 (11%) disagreed.

Having a coherent strategy on sustainable energy security and contributing to international bodies to define and standardise ESG measurement and reporting standards are some examples of the steps respondents said they’d like to see the government take. The PLSA will continue to lobby on your behalf for these actions to be prioritised.

Schemes that did not yet have a net-zero commitment said this was largely to do with the difficulties of comparing like-for-like data received from investee companies and wanting to ensure their commitment is robust.

“[We are] fully committed to net zero but wish to work with our managers to make sure any commitment is meaningful and not arbitrary or box ticking,” said one respondent.

“We would welcome clear guidance to promote a standard approach,” said another.

Tellingly, most respondents (59%) are not confident the UK will meet its climate target, and three-quarters (74%) are concerned by recent updates which suggest there is no sustainable pathway to achieving warming of less than 2°C .

Most of those surveyed (70%) told us they have made significant progress in playing their part in the transition to a net-zero society, especially LGPS schemes (100%). However, 1 in 10 (12%) said their focus on ESG has been reduced as a result of recent economic developments, such as the cost-of-living crisis and market volatility. 

How the PLSA can help

As the main representative for UK pension funds, we are committed to working with members to help them achieve their net-zero goals, by seeking policy change where needed, encouraging collaboration across the sector, and being at the forefront of the considerations on how the finance sector can respond to the climate emergency.

The PLSA has focussed for several years on supporting schemes in their endeavours to implement responsible investment principles and practices. Initiatives include the following:

• Carbon Emissions Template: We released the second iteration of the Carbon Emissions Template in January this year, published in partnership between the PLSA, the Association of British Insurers and the Investment Association. The template provides a standardised set of data that pension schemes need to calculate their emissions and enable them to better understand the environmental impact of their investments.
• Towards a Greener Future: We have also spoken to those who are advanced on their journey to integrating a climate-aware investment strategy to share their experience of the issues they encountered and how they resolved them. We published these case studies in a guide, Towards a Greener Future. It includes advice on producing a Taskforce on Climate-Related Financial Disclosures (TCFD) report and the important role engagement plays in protecting investments.
• Stewardship and Voting Guidelines: AGM season is an opportunity for pension scheme trustees and their asset managers to engage with company directors, revisit environmental, social and governance policies and seize the chance to build back better than before. In our Stewardship and Voting Guidelines we emphasise the importance of institutional investors scrutinising companies to ensure they are properly disclosing their footprint on the environment in light of the ongoing climate emergency. The guide also advises schemes to look for evidence that companies are taking their TCFD obligations seriously.

The pensions sector is united in its desire to tackle climate change, and the PLSA will continue to provide you with tools and guidance to make the job easier.

Visit our Responsible Investment Hub.