Climate change: major risk or a load of hot air?

Helen Morrissey
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Climate change: major risk or a load of hot air?

This week's Pensions Buzz results on ESG have caused a lot of debate finds Helen Morrissey.

This week's Pensions Buzz results on environmental, social and governance (ESG) issues has certainly raised a few eyebrows.

Despite much discussion around the potential impact of factors such as climate change, it would seem many schemes are not taking ESG factors into account.

Almost two in five (39%) of those who responded said they did not take ESG factors into account when making or advising on investment decisions. More than half (53%) of participants said they did not see climate risk as a financially material risk to portfolios.

The heartening thing about the research was that it shows there are schemes out there that are looking at this issue more closely.

I must admit I find this last statistic quite surprising. Whether you believe climate change is happening or not it is clear that the world we live in is changing.

The shift to a low carbon economy is happening and this will change how we live our lives. This in turn will have an effect on the industries and companies that will prosper and fail in the coming years.

It is also likely that schemes could come under growing pressure from their members to take these issues into account. The issue of averting climate change is and will continue to be a financially material risk to portfolios.

Growing awareness

The heartening thing about the research was that it shows there are schemes out there that are looking at this issue more closely.

Almost a quarter (22%) said ESG factors are fully embedded in investment decision making while 31% of respondents do see climate risk as a financially material risk to portfolios. I'm sure that if we had conducted this survey five years ago we would not have anywhere near this level of awareness.

So while awareness of ESG issues is growing, it is clear there is much more that needs to be done before it becomes fully embedded into pension scheme investment.

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