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The Actuary The magazine of the Institute & Faculty of Actuaries

£30bn pension fund to replace managers that ignore climate risks

The £30bn Brunel Pension Partnership has today announced that it will replace asset managers that fail to reduce its portfolios’ exposure to climate change risks by 2022.

Climate risks being ignored ©iStock
Asset managers ignoring climate risks ©iStock

In a new climate policy, the UK pension fund warned that companies who fail to align their emissions with the Paris Agreement could also be removed from its portfolios.

Moreover, it said it would report on its low-carbon investments, and push policymakers to adopt policies such as a meaningful price on carbon and removal of fossil fuel subsidies.

This comes after Brunel – one of one of eight pooled local government pension schemes – carried out a study of 130 asset managers and reviewed 530 investment strategies.

It found that “backward looking” investment risk models are inherently flawed at taking climate risk into account, and described the asset management industry as “not fit for purpose”.

"We need to systematically change the investment industry in order to keep temperature rise to well below 2°C," said Brunel chief responsible investment officer, Faith Ward.

“We have a climate emergency on our hands and it would be irresponsible of us to accept the status quo."

Brunel’s study of asset managers also found an unwillingness to invest in the low-carbon economy, especially in areas where technologies are perceived to be unproven.

It identified “perverse incentives” and “conflicts of interest” in the system, including the use of conventional market-weighted benchmarks that fail to adequately price in climate risks.

The pension fund said it would engage with its material holdings to persuade them to improve their climate management quality using the Transition Pathway Initiative assessment framework.

In cases where companies fail to show progress, Brunel will vote against the reappointment of the chair and other board members.

This follows BlackRock’s warning that climate change is likely to trigger a “fundamental reshaping of finance”, with a substantial capital relocation imminent.

"The finance sector is part of the problem, when it could and should be part of the solution for addressing climate change," said Brunel chief investment officer, Mark Mansley.

"How the sector prices assets, manages risk, and benchmarks performance all need to be challenged.”

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