Pension trustees need to proactively engage with the investment chain to address climate risk

In collaboration with the University of Leeds, Pinsent Masons launches 'Managing Climate Risk in a Changing Environment' an exploratory report that provides recommendations for how trustees can engage with the investment chain on climate risks in ways which are appropriate and proportionate for their schemes.

"The lack of a standardised approach to climate risk management means that many pension scheme trustees are unclear whether and how to consider climate change risks. However pension scheme trustees have a fiduciary duty to take account of factors which present a material threat to the financial performance of their fund", says  Carolyn Saunders, Head of Pensions and Long-Term Savings at Pinsent Masons.

"Clearly there is a potential for climate change to impact negatively on investment returns; so by incorporating climate change risk assessment into their investment strategy, strategic asset allocation, the selection and monitoring of fund managers and their stewardship activities, trustees can start to mitigate the risks this poses."

The last few months have seen the Environmental Audit Committee asking the UK’s top 25 pension funds to explain how they are managing the risk of climate change and the European Commission publishing its action plan for a greener and clear economy. The latter includes proposals to clarify the duty of asset managers and institutional investors to take account of sustainability in the investment process and to enhance disclosure requirements.

Saunders adds: "Our report enables trustees to begin proactively engaging with the investment chain, placing them in a position to start making informed decisions about investments right away."

'Managing Climate Risk in a Changing Environment' explores trustees' fiduciary responsibilities in relation to climate change, options for mitigating climate risk to investment performance and current approaches to addressing climate change.