New research shows FTSE 100 pension schemes in the UK leave staff savings highly exposed to climate risks. The research identifies a disconnect between what big companies have committed to doing on climate change and the protections given to their employees’ pension savings.

ShareAction surveyed 25 FTSE 100 companies with some of the largest defined contribution (DC) pension schemes to assess how they protect employees’ savings against climate-related financial risks. 15 schemes participated in the research process, covering approximately one million workers and £17.5bn assets under management.

Of the schemes assessed, only the HSBC Bank Pension Scheme and the RBS Retirement Savings Plan have changed their default investment strategies to reduce the carbon exposure of staff pensions.

However, the research finds that 13 of these 15 major UK companies are backing initiatives to address climate risks such as the Science-Based Targets Initiative and the Taskforce on Climate-related Financial Disclosures. National Grid, for example, has set ambitious public targets to reduce the company’s carbon footprint by 80% by 2050. However, the pensions savings of National Grid employees working to implement this commitment remain stuck in a business as usual investment fund that does little to manage the financial risks of climate change.

ShareAction commends the transparency of schemes that participated in the research. Non-responding schemes, including the UK Shell Pension Plan and BAE Systems DC Retirement Plan, leave their employees in the dark on how they manage climate risks relative to others in the corporate sector. A member of Shell’s DB pension scheme has threatened legal action over their lack of climate risk disclosure.

Climate change poses a systemic threat to the global financial system, and pension savings need to be actively protected against this risk. The report finds that while eight of the ten employer-sponsored trusts discussed climate-related risks with their investment consultants, only three had gone on to conduct climate stress-testing of their investments.  

A school leaver or graduate joining the workforce today can expect to retire in the 2060s. However, the impacts of climate change on their savings depends on actions taken in the coming decade. The world’s leading climate scientists have warned there are only 12 years for global warming to be kept to a maximum of 1.5C, beyond which even half a degree will significantly worsen the risks of financially damaging droughts, floods, extreme heat and disruption for millions of people.

ShareAction hopes with the release of this report to support major UK employers to better protect their staff against climate risks and to benefit from green growth opportunities. Positively, the researchers found that six of the surveyed schemes were considering further action to address climate-related risks.

Paul Britton, Research Officer at ShareAction and lead author, said: “It’s no secret that companies taking credible action on climate and other sustainability issues are doing a better job of hiring and retaining talent. 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. By more actively managing climate risks in their staff schemes, employers can protect employees for the long-term while demonstrating joined-up thinking on corporate sustainability commitments.” 

Mary Creagh MP, Chair of the Environmental Audit Committee, said: “Pension funds have a duty to act in the best interest of their beneficiaries and 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. My Committee published two reports on green finance last year, calling for financial reporting on sustainability. I particularly welcome calls from ShareAction to introduce mandatory reporting on climate-related risks in line with TCFD recommendations. We need to fix the incentives that encourage short-term thinking. Long-term sustainability must be factored into financial decision making.” 

Ruston Smith, Chairman of the Tesco Defined Contribution Governance Committee, said: “The rapid changes we can see that are influencing our planet and global environment emphasises the increasing importance that climate change and ESG will continue to have, as part of a number of factors, in the long term investment of retirement savings.  Climate change, and its implications, are a key influence on future business strategy and therefore creates both investment risks and opportunities.  Regular training, intelligent investment, monitoring and effective stewardship are important in delivering good outcomes for current and future generations of members who rely on their retirement savings in the later years of their life.”

Notes for editors:

  • For more information, please contact Beau O’Sullivan at beau.osullivan@shareaction.org or +44203 475 7859
  • This follows research conducted by the Environmental Audit Committee that considered the climate change strategies of major defined benefit (DB) schemes.
  • 13 of the 15 participating corporations are involved in, or expressed support for, the: RE100, Science-based Targets Initiative, Taskforce on Climate-related Financial Disclosure, or CDP A-list.
  • 10 of the 15 participants utilised employer-sponsored trusts, while five used master trusts for their DC pension provision.
  • Non-respondents: Associated British Foods DC Pension Scheme, BAE Systems DC Retirement Plan, BP Defined Contribution 2010 Pension Plan, BT Retirement Savings Scheme, Centrica DC Scheme, Compass Retirement Income Savings Plan, 2013 NEXT Group Pension Plan, Prudential Staff Pension Scheme, UK Shell Pension Plan, Whitbread Group Pension Fund.
  • According to The Pensions Regulator, 92% of savers in trust-based schemes are invested in the scheme’s default strategy.
  • The financial risks of climate change refers to assets losing their value across the investment portfolio due to (i) emerging regulation to curb global temperature increases and (ii) growing competition from low-carbon energy sources. For example, over 80% of the world’s coal reserves are expected to be “unburnable” (or “stranded”) if we are to stay within the 2C warming limit. The physical impacts of climate change (such as extreme weather events) pose risks to investment assets such as property, agriculture and infrastructure.
  • ShareAction’s vision is a world where ordinary savers and institutional investors work together to ensure our communities and environment are safe and sustainable for all. Our mission is to unleash the positive potential of the mainstream investment system. To do this: We’re building a movement for change in our investment system by working with people inside and outside the industry to challenge the status quo; We’re unlocking the positive potential of the investment system by working with large and small investors to change unsustainable corporate practices; We’re reforming the investment system by advocating for change in the policies, governance, and incentives that drive behaviours in the investment industry.