The Asset Owners Disclosure Project (AODP) revealed on October 23, 2018 that only 13% of savings collectively managed by the world’s 100 largest public pension funds have undergone formal assessment for exposure to climate-related risks, leaving $9.8 trillion (£7.5 trillion) unprotected from the economic shocks of global warming.
Considering the financial relevance of climate-related risks and opportunities, as clearly outlined in the recent climate warning by UN scientists, this exposes almost 90% of assets managed on behalf millions of savers worldwide to potential losses in the long term.
According to AODP, part of the responsible investment organization ShareAction, pension funds are most aware of the risks associated with fossil fuel dependent investments. However, this awareness does not yet seem to have translated into action, with 85% of funds having no formal policy for excluding thermal coal. Among the range of formal climate policy commitments made by pension funds, those related to fossil fuels are among the least popular, while company engagement features as the most popular.
- Only 10% of pension funds have made a formal commitment to align their portfolios with the goals of the Paris Agreement.
- 87% of assets managed by the world’s largest public pension funds yet to undergo formal climate risk assessment.
- Risks associated with fossil fuel dependent investments are the most commonly identified climate-related risk, however only 15% of pension funds analyzed have developed a coal exclusion policy.
- Around half of pension funds are undertaking some form of climate-related company engagement, but this largely focuses on improving disclosure instead of action.
- Almost a fifth of pension funds have performed climate scenario analysis in their investment portfolios.
With almost 200 nations having ratified the Paris Agreement, only 10% of the largest public pension funds have made formal pledges to align their portfolios with the goals of the Paris Agreement, including Sweden’s AP7 and Finland’s Varma. A further 25% of funds have developed various forms of formal climate-related policies, while a staggering 65% of funds either have no policy, or a broad ESG or responsible investment policy that contain no specific references to climate change.
Only a fifth of pension funds are already performing climate scenario analysis in their investment portfolios, despite the TCFD recommendations coming out last year, with a further 10% considering how to approach it.
The responsible investment group recently published a global ranking of these public pension funds on their overall climate performance, and found that European funds were leading the pack, and three UK funds achieving disappointing results.
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