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“Earth to trustees” – climate risk guidance for pension funds is now available

The UK’s Pensions and Lifetime Savings Association (PLSA) has launched comprehensive industry guidance on managing climate risk to pensions portfolios.

Produced in association with ClientEarth, “More light, less heat” issues a clear warning to governance bodies and trustee boards about the threat to portfolios, and to overall financial stability, if climate risk goes undermanaged.

The guidance points to the top research from the past two years on the financial implications of climate change, and outlines a plan for governance bodies which need to get a grip on climate-related risks and opportunities in their scheme as the energy transition continues to impact portfolios.

The guidance was introduced today by ClientEarth lawyer Natalie Shippen at the PLSA’s annual trustee conference, in a session entitled “Earth to trustees”.

Climate change has implications for the bottom line

The PLSA’s policy lead for stewardship and governance Luke Hildyard said: “Climate change is not just an ethical issue for pension fund governance bodies, but a major threat to financial stability highlighted by numerous credible economic commentators and rigorous research. It is therefore imperative that boards and committees consider the potential impact that climate change will have on their investment portfolios.

“The PLSA was very encouraged by responses to our stewardship survey. Over 50% of respondents told us that they planned to increase stewardship activity in the next year around areas such as climate change.

“This guide represents a substantive programme that pension funds can implement as part of these plans. We hope that it will help governance bodies and give confidence to beneficiaries that risks to their incomes in retirement deriving from climate change are being responsibly managed.”

The Pensions Regulator (tPR) has published a guest article on its website, welcoming the guidance. The piece reminds the industry that “integrating climate change awareness into the mainstream investor’s remit is not a ‘nice to have'”. It also reaffirmed tPR’s expectations of pensions trustees: climate change is “one of the factors affecting the long-term sustainability of scheme investments”, and as such needs to be “considered and accounted for” by trustees.

Natalie, who is a company and financial lawyer at ClientEarth, said: “Climate change requires consideration by governance bodies as a financial risk – and this is fortunately being recognised industry-wide. But until now, a comprehensive ‘how-to’ for the day-to-day management of the issue has been lacking, meaning pensions professionals may be aware of their legal duties but feel ill-equipped to exercise them.

“The PLSA’s new guidance is a one-stop shop for trustees and professional advisers. It is a vital tool for the pensions industry as the physical impacts of climate change intensify and the energy transition gathers speed.”

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