UK - Pension trustees have a duty to address the financial risk posed by climate change as part of their fiduciary role in managing risk and maximising return across investments, according to a new report by the Carbon Trust.
A Climate for Change: A Trustee’s Guide to Understanding and Addressing Climate Risk, prepared by Mercer Investment Consulting, claims “virtually all” asset classes have the potential to be affected by climate change.
It s these potential and currently unknown risks that make addressing climate change consistent with the fiduciary responsibilities of pension fund trustees, according to the Carbon Trust.
Tom Delay, chief executive of the Carbon Trust, commented: “This report represents a significant move forward as we believe that a trustee has a fiduciary responsibility to address this issue. This means that even the most hard-nosed investors have to look at the financial impact of climate change, regardless of whether or not they personally view the environment as an important issue.”
Christine Farnish (pictured), chief executive of the National Association of Pension Funds (NAPF), added: “Pension trustees have a clear, legal responsibiity towards their members and beneficiaries. Taking a long term view about investing in successful companies and considering areas of long term risk like climate change is an important part of fulfilling that role.”
Risks include regulatory risk, physical risk, litigation risk, competitiveness risk and reputational risk, the Carbon Trust said.
Peter Scales, chairman of the Institutional Investors Group on Climate Change (IIGCC) said: “Pension funds can no longer afford to ignore the impact of climate change on their investments... climate change is an issue that needs to be at the forefront of investment decision making. Trustees have a clear responsibility to follow best practice in the management of their investments and taking account of climate risk and opportunity is a fundamental element of that responsibility.”
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