Nearly 90% of public pension savings exposed to global warming

The Asset Owners Disclosure Project (AODP) has revealed that only 13% of savings collectively managed by the world’s 100 largest public pension funds have undergone formal assessment for exposure to climate-related risks, leaving $9.8 trillion (£7.5 trillion) unprotected from the economic shocks of global warming. This exposes almost 90% of assets managed on behalf millions of savers worldwide to potential losses in the long term.

According to AODP, part of the responsible investment organisation ShareAction, pension funds are most aware of the risks associated with fossil fuel dependent investments. However, this awareness does not yet seem to have translated into action, with 85% of funds having no formal policy for excluding thermal coal.

50% of pension funds have been found to undertake some form of company engagement with high-carbon companies. However, despite recognising the regulatory and transition risk of fossil fuel investments, these efforts focus largely on improving disclosure, instead of driving action. Furthermore, results indicate an ‘escalation gap’, with only a minority of pension funds (18%) escalating their engagements in case of failure.

With almost 200 nations having ratified the Paris Agreement, only 10% of the largest public pension funds have made formal pledges to align their portfolios with the goals of the Paris Agreement, including Sweden’s AP7 and Finland’s Varma. A further 25% of funds have developed various forms of formal climate-related policies, while a staggering 65% of funds either have no policy, or a broad ESG or responsible investment policy that contain no specific references to climate change.

Promisingly, almost a fifth of pension funds are already performing climate scenario analysis in their investment portfolios, despite the TCFD recommendations only coming out last year, with a further 10% considering how to approach it.

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