Climate change represents a material financial risk to pension funds. The SCPF is doubly exposed to climate risk, as it holds fossil fuel investments and is sponsored by an oil and gas company. Christoph Harwood, a member of the SCPF, has been seeking proof that the fund is properly dealing with this issue given the risks to members’ pensions. After two years of unsatisfactory answers to his requests through the fund’s internal dispute resolution procedure, he took his complaint to the Pensions Ombudsman at the end of 2018. The Ombudsman decided not to uphold Mr Harwood’s complaint – but questions exist over how the decision was reached.
Joanne Etherton, pensions lawyer at ClientEarth, which helped Mr Harwood with his submission to the Ombudsman, said: "Climate change poses significant financial risks to pension funds and members have legitimate concerns about how their own scheme is dealing with climate risk. At the time of the complaint, none of the scheme’s policies provided to Mr Harwood included even a mention of climate change. With such a lack of transparency, it’s impossible for members to take comfort that the risks are being addressed.”
Mr Harwood said: "Obviously I'm disappointed by the Ombudsman's decision but I won’t be launching an appeal. I’d like to thank ClientEarth for their help with this complaint.”
While the decision was not what Mr Harwood had hoped for, the SCPF updated its Statement of Investment Principles (SIP) shortly after the complaint was filed with the Ombudsman. It now states that SCPF incorporates financial risks relating to climate change into its scenario analysis for asset liability modelling, suggesting that the scheme might finally be taking climate risks seriously.
Etherton added: “We are somewhat encouraged by these policy changes and hope that this spells the beginning of systematic management of the risks posed to SCPF by climate change.
“But this case highlights the need for greater regulatory oversight of this issue. One pension fund has been pushed to up its game on climate management ¬– but it’s down to the regulators to make this a reality across the board.”
However, the Ombudsman’s decision has led ClientEarth lawyers to believe the Ombudsman has failed in its duties by not engaging with the content of the complaint. The decision states that Mr Harwood “did not provide any specific cases” to support his argument, while seven pages of case law and legal analysis had in fact been included in the complaint.
Etherton said: “On the face of it, the wording of the Determination suggests that the Ombudsman may not have fully read the complaint. Failure to engage with the case law in the submission raises serious concerns about the Ombudsman’s decision-making process and access to justice for members of pension schemes.”
ClientEarth is now calling on the Pensions Ombudsman to carry out a review of its internal processes, in order to evaluate how it reaches decisions.
The Pensions Ombudsman is a low-cost jurisdiction which makes it possible for members to bring complaints. Appealing an Ombudsman decision brings with it significant financial hurdles and is very time-consuming
Etherton added: “It would be unrealistic to expect a pension scheme member to go up against one of the UK’s largest pension funds in the High Court. While this is a poorly reasoned decision, there are too many barriers related to time and costs for an appeal to be a viable option.”
ClientEarth will continue to engage with all pension funds, reminding them that they risk legal action if they fail to consider the effects of climate change on their portfolios.
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