By Jennifer Thompson
Fourteen of the UK’s biggest pension funds have been warned by lawyers they risk legal action if they fail to consider the effects of climate change on their portfolios.
ClientEarth, the legal environmental campaign group that sued the UK government over air pollution, wrote to funds including the Tesco Pension Scheme, British Airways Pensions and the BP Pension Fund on Friday urging them to consider how they manage and report on climate risk.
“We are concerned that you, as scheme trustees, may be failing to take sufficient steps to address climate risk and therefore failing to manage the scheme’s investments in a manner consistent with members’ best interests,” the letter stated. “In doing so, you are potentially putting members’ retirement outcomes at risk and exposing yourselves to the possibility of legal challenges for breach of your fiduciary duties.”
Investors and policymakers have stepped up their efforts to push for better disclosure on climate change risk since the 2015 Paris climate change agreement, which aims to limit global warming to below 2C above pre-industrial levels.
British MPs recently lambasted several large UK pension funds for being “worryingly complacent” about addressing climate change risks following a survey of top funds by the Environmental Audit Committee, a parliamentary body.
The EAC called on the UK government to introduce rules within the next four years to force pension funds and UK-listed companies including banks to disclose climate-related risks. It said the government should immediately clarify existing rules around corporate risk disclosure to include material climate risks.
“The law is clear: people need to consider material financial risk,” said Joanne Etherton, lawyer at ClientEarth. “This is a big, systemic issue for the whole financial world.”
The risk of legal action is highlighted by a case in Australia where Mark McVeigh, a member of the Retail Employees Superannuation Trust, is taking his pension fund to court for failing to disclose information on the impact of climate change on his investments and how it is addressing the issue.
The outcome will be regarded as an important test case for the A$2.6tn Australian pension fund industry, according to David Barnden, principal lawyer at legal practice Environmental Justice Australia, the non-profit supporting Mr McVeigh’s case.
“These funds and the individuals that control them are critical to the economy’s fast and orderly transition under the Paris agreement,” he said.
Ms Etherton said ClientEarth would consider bringing a similar action in the UK on behalf of a pension scheme member. “The same principles apply,” she said.
“Advances in the evidence available on the financial risks of climate change, along with rapidly evolving market standards in responses to climate change-related risks, will be relevant to how a court would weigh your actions against your legal duties,” ClientEarth’s letter warns.
Published by the Financial Times on 13 August 2018