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The Actuary The magazine of the Institute & Faculty of Actuaries

FTSE 100 pension schemes ‘highly exposed’ to climate change

FTSE 100 companies are leaving their workers’ pension savings highly exposed to the potential impacts of climate change, research from ShareAction has revealed.

Climate risk to pension savings ©Shutterstock
Climate risk to pension savings ©Shutterstock

After studying 15 defined contribution pension schemes covering around a million workers, the charity found that just two had adopted low-carbon investment strategies.

This is despite 13 of the companies studied backing initiatives to address climate risks, such as the Taskforce on Climate-related Financial Disclosures (TCFD).

ShareAction said it had identified a disconnect between what the FTSE 100 has committed to do on climate change, and the protection it gives to its employees’ savings.

“It’s no secret that companies taking credible action on climate and sustainability issues are doing a better job of hiring and retaining talent," research officer, Paul Britton, said.

“That these employees’ pensions are exposed to unmanaged climate risks is wrong and will send alarm bells ringing – these schemes will pay pensions deep into the 21st century.”

The study highlights how a school leaver today could expect to retire in the 2060’s, but that the impact of climate change on savings depends on the actions of pension schemes now.

The HSBC Bank Pension Scheme and RBS Retirement Savings Plan were the two schemes found to have changed their default investment strategies to reduce carbon exposure.

The UK Shell Pension Plan and BAE Systems DC Retirement Plan failed to respond to the researchers, which warned that they are "leaving their employees in the dark" on climate risks.

It was also found that eight of 10 employer-sponsored trusts had discussed climate-related risks with investment consultants, but only three had gone on to conduct climate stress testing of their investments.

Environmental Audit Committee chair, Mary Creagh, said: “Long-term sustainability must be factored into financial decision-making.

“Pension funds have a duty to take account of long and short-term climate risks, but this report shows too many are lagging behind and failing to take these risks seriously.”

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