The next pension misselling scandal will be centred around pension schemes’ lack of action around climate change issues, and any schemes not targeting the Paris accord targeting limiting climate increase to 1.5 degrees will be in the firing line.
Tony Burden, the chief executive of Make My Money Matter — a high profile campaign group, founded by Richard Curtis — gave this stark warning at the Corporate Adviser Summit last Thursday.
Burdon told consultants and providers that this issue was “a mis-selling scandal waiting to happen”.
“If you look at the brochures and marketing literature of many pension funds they have picture of trees, and talk about climate tilts.
“But the reality is that the investments are not aligned with the Paris climate objectives of limiting climate change to 1.5 degrees. The schemes invest in funds that causing climate change and will contribute to a 4 degree increase in temperature.”
He added that this could lead to action from investors, as they demand that their money is invested in ways that is not contributing to the climate catastrophe.
Burdon added that until last week Nest had been the only pension provider to commit to net zero emissions by 2050 through its underlying investments. It also aims to halve its carbon emissions by 2030. Aviva became the second provider to commit to
He says: “We want to see more schemes aligned with the Paris climate objective and integrating ESG factors properly, not just paying lip service to them.”
Other attending the debate agreed there was scope for DC pension schemes to do more. Chronos Sustainability chief executive Rory Sullivan pointed out that DC was at a tipping point.
He says changes that happened in the DB sector on these issues 10 or 15 years ago were now a matter of “urgent concern” for the DC sector.
He adds though that this will be an area of competition in the market. “There is a great deal of individual and corporate concern about these issues.” If this is not tackled properly then clients will go elsewhere, he says.
Speaking at the event, UN PRI senior specialist on climate and energy transition Edward Baker said climate change presented significant challenges for the UK pension industry.
He said this issue of transitioning to a lower carbon world created enormous challenges for pension schemes at present. Covid has hastened this transition he said.
He added that even if there is a rapid reduction in carbon emissions, it may not be enough to hit the 1.5 degree target, and more stringent regulatory action may be needed.
Baker added that there were now a range of tools that consultants, trustees and schemes can use to compare funds and understand their carbon footprint. The EU taxonomy provides a common framework for this he said, producing a performance standard for green activities.
He said there will be more pressure on UN PRI signatories to disclose publicly the information required by the Task Force on Climate-related Financial Disclosures (TCFD). The DWP is consulting on whether to require schemes, starting with the largest ones, to comply with the TCFD, which could include revealing the carbon footprint of the investments within a scheme.
Buck principal and senior investment consultant Celene Lee says that greater disclosure and more robust data will help drive up standards across the industry.
She says that the industry is more complex and has moved away from a simple binary of inclusion and investment or exclusion and disinvestment. She says better data on carbon emissions can help drive investment decisions, and improve corporate behaviour with a view to attracting investment.
“There are a range of issues that people want better data, from carbon emissions to pollution and use of plastic. We are on a journey to getting better data that encapsulates lots of these factors.”
In a press statement aIpplauding Aviva’s commitment to the Paris target, Richard Curtis, founder of Make My Money Matter said: “We welcome Aviva’s leadership with the important commitments made today. With two of the UK’s leading pension funds now committed to net zero, that’s 13m pension pots tackling the climate emergency. However, there’s much more to do. That’s why Make My Money Matter is calling for all pension funds to match Aviva’s leadership and commit to net zero, with a halving of emissions by 2030.”
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