12 September, 2018

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Meanwhile, the Asset Owners Disclosure Project, which rates and ranks the world’s largest institutional investors and assesses their response to climate-related risks and opportunities – and crucially, makes those ratings public, providing transparency for beneficiaries, clients, investors and stakeholders, has just released its latest report, looking at the performance of public pension funds on tackling climate risks.

The report shows that more than 60% of the world’s largest public pension funds have little or no strategy on climate change, which could put them in danger of breaching their legal duties. Fewer than 1% of assets of the world’s largest 100 pension funds are invested in low-carbon solutions, and only 10% of assessed pension funds have a policy to exclude coal from their investment portfolio, it adds.

“A handful of public pension funds, mostly based in Europe, are showing true leadership on climate change, demonstrating robust approaches to aligning their investments with the low-carbon transition,” the report says. Five funds in each of Sweden and the Netherlands achieved a leading rating, with California- and New York-based funds leading U.S. pension funds, in spite of weak national climate regulation.

The top-ranked pension funds were Sweden’s AP4, Fonds de Réserve pour les Retraites (FRR) of France, the New York State Common Retirement Fund (NYSCRF), and the Dutch fund ABP. The three largest UK funds lag relative to the rest of Europe.

AODP says that pension funds, which accounts for one third of all asset owners’ investments globally, need to drive the transition to a low-carbon economy by moving away from fossil fuel investments and stepping up investment in low-carbon fields such as renewable energy and electric vehicle technology.

However, the group calculates that the world’s 100 largest public pension funds are investing just $90 billion in low-carbon technology, representing less than 1% of their combined assets and dramatically shy of the IPCC’s recommended annual investment of $1.1trillion per year. These lacklustre investment figures are exacerbated by the fact that only 10% of assessed pension funds have introduced policies to exclude coal from their investment portfolio, despite it being the most polluting fossil fuel.

Felix Nagrawala, AODP Analyst, said: “AODP is turning up the heat on public pension funds who fail to address climate change in their investments. Our comprehensive review of the climate-competence of the industry exposes those funds who are all talk and no action, and those showing real climate innovation. Pension funds have a duty to serve the long-term interest of their members, which isn’t being met if the money they invest is depleted along with the health of the planet. It’s high time the industry takes action.”

New York State Comptroller Thomas P. DiNapoli, trustee of the New York State Common Retirement Fund, said: “Climate risk poses a major threat to long-term value, but mitigating that risk presents investment opportunities and is key to our decision-making and our engagement with portfolio companies.”

Chris Fox, Senior Director, International Investor Engagement at Ceres, says: “AODP’s research clearly highlights the need for deeper action towards aligning pension investments with the <2C goal. We hope the ranking will be a wake-up call, alerting funds not just to the risks associated with climate change but also the far-reaching opportunities associated with the low-carbon economy.”