In a survey of more than 2,000 UK adults commissioned by the Pensions and Lifetime Savings Association (PLSA), 80% said global warming is an important issue to them and around half (51%) say it is “extremely” or “very” important to them.
However, there remains a lack of understanding among savers as to how pension schemes are taking action against climate change. Three-fifths of workplace pension holders (59%) say they don’t know if schemes are taking any action; just one in seven (15%) workplace pension holders think schemes are.
With the government announcing new climate reporting obligations for pension schemes in January, the findings show UK pension funds are missing an opportunity to engage savers about the positive proactive steps they are taking to address climate risk in their investment portfolios. Some workplace schemes, including many of the largest and best known names in the sector, have been leading global initiatives to encourage investee companies to adopt greener policies and prepare for a lower carbon future. Others have made public net zero commitments or have reduced – or are in the process of reducing – their investments in fossil fuel related companies.
Some examples of action schemes have taken to address climate risk:
• Agreed investment policies that align the pension fund with the commitments of the Paris Agreement;
• Adopted approaches to incorporate climate considerations into investment decisions, including carbon foot-printing and scenario analysis;
• Undertaken training for trustees to better understand the various ESG risks that could impact pension funds;
• Signed the Climate Action 100+ initiative, signalling their commitment to a strong governance framework, helping to reduce greenhouse gas emissions and provide enhanced disclosure on climate risk;
• Developed greener environmental, social and governance (ESG) tilted investment options for DC members or allocated more of the DC default strategy to greener investments;
• Committed to gradual decarbonisation of their investment portfolios;
• Influenced the public debate on climate risk;
• Held investee companies and asset managers to account, including in instances where the asset managers have not been active in the stewardship of investments;
• Set specific targets on temperature or fossil fuel investments.
The PLSA survey found a substantial number of people don’t understand the basics about what pension schemes do with their money. Little more than two thirds (68%) of the general population understand that pension schemes invest in a range of companies and other investments, and only one in five (22%) pension holders say they know the types of companies that their pension invests in.
Despite these knowledge gaps, when it comes to pensions there is still strong support for greater transparency around climate impact, in terms of the investments that are made and the way firms operate. Six in 10 (62%) people think that pension schemes and other investors should hold those in charge of the companies they invest in to account for their efforts to minimise their impact on climate change.
Two-thirds (66%) think investors have a responsibility to encourage the companies they invest in to behave in a way that helps to tackle climate change. A similar proportion (65%) think that financial services firms should report on the impact of the companies they invest in on climate change. Around seven in 10 people (68%) say that pension schemes should be transparent about the extent to which they invest in a climate-aware way. Seven in 10 (69%) also want financial services firms to be transparent about the impact of their own operations on climate change.
The government has recently confirmed that funds over £1bn will from October 2022 be required to report against new standards set by the Task Force on Climate-related Financial Disclosures (TCFD) on how they are considering the impact of climate risk on their investments. Around a third of PLSA members (32%) already report against these standards. The universal adoption of TCFD will play a key role in shining a light on best practice.
As set out in the PLSA’s recent report, ‘A Changing Climate: How Pension Funds Can Invest for the Future,’ there is evidence that if the pension industry can better communicate its approach to climate-aware investing, members, especially younger savers, are more likely to engage with their pension scheme and make better decisions about their level of saving.
A pre-Covid survey by the Pensions Regulator found the proportion of DC schemes whose trustees are considering climate change in their investment strategies had doubled between 2019 and 2020 to 43%. And, on the basis of our recent engagement with schemes, we are confident that this figure will go on rising very quickly.
The PLSA is committed to supporting schemes to implement best practice on all environmental, social and governance (ESG) matters and has been involved in a number of initiatives to support improved understanding and disclosure in the pensions industry, including producing practical guidance on ESG and Stewardship, Voting Guidelines and identifying solutions to some of the barriers to wider adoption of climate-aware investing.
Richard Butcher, Chair, PLSA said: “In recent years there has been a big momentum shift in attitudes towards climate change and the public rightly expects to see more action from the corporate and financial worlds. They want us to make a positive difference.
“What this survey shows is that many people do not realise that pension schemes are unanimous in their support for investing in a climate-aware way and have been at the vanguard of encouraging better corporate behaviour with respect to climate change. For some schemes this means ‘greening’ their investment portfolios by reducing their allocation to the most carbon polluting companies.
For others it means exercising their ownership rights to hold investment managers and the company directors of the companies in which they invest to account on climate and ESG policies.
“UK pension schemes manage more than £2trn on behalf of the public. Savers have told us they want us to use the money to make the world a better place. It is consistent with our fiduciary duty that we do so and tell them about the positive impact their savings have made.”
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