A parliamentary committee has warned that pensions trustees are could be failing to account for environmental issues when considering the risks faced to the value of pension schemes. We cover the latest updates from this ongoing inquiry by the committee.
The ‘contagion’ of risk makes the job of those having to understand how these risks impact on investment even harder. Now the parliamentary Environmental Audit Committee has put further pressure on pension trustees – claiming that they need to consider more deeply the impact of environmental risks upon their schemes.
Such risks are hitting insurance firms in terms of claims, while the energy sectors are being disrupted by a move away from fossil fuels.
The committee is taking evidence as part of its inquiry into ‘green finance’, to explore how to incentivise the economy to invest and operate in a more sustainable way.
Committee chair Mary Creagh MP has sent letters to the chairs of the top 25 corporate pension funds, asking them for information as to how they strategically approach known environmental risks such as climate change.
In the letters published on the committee’s website, Greagh sets out nine questions for the pension trustee chairs to answer, including the following:
• Do trustees accept that pension funds are potentially exposed to financial risks through climate change?
• Which climate-related financial risks are you most concerned about?
• Has your pension scheme considered climate change risk at board (or investment committee) level?
• What actions have you taken in response to those risks.
A young person enrolled on a pension scheme could be 45 years away from retirement, and long-term risks must be considered, Creagh said.
“Over that timescale these climate change risks will inevitably grow. We are examining whether pension funds are starting to take these risks into account in their financial decision making,” she added.
Evidence has recently been gathered by the committee from the Bank of England and Department of Work and Pensions. The committee heard that while there are examples of good practice, trustees often focus on short-term goals. Longer-term considerations are neglected.
Kevin Reed is one of the UK’s most senior accounting and finance journalists. He is a former editor of Accountancy Age and Financial Director, and writes regularly on corporate and professional services governance.
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