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ClientEarth Communications

11th June 2020

Climate finance

Pensions and climate change: what's the link?

If you’re thinking about how your own life impacts the climate crisis or, indeed, how the climate crisis will impact you, your finances should be one of the first places you look and, in particular, at your pension.

Whilst your pension might seem like a mysterious and elusive pot of money, it is possibly your greatest contribution to the financial system. Understanding how it contributes to the climate crisis and demanding it is part of the solution is one of the single most impactful things you can do, both for the planet and for yourself.

What is the pension problem?

Your pension is money you are earning right now set aside and invested in financial markets to secure savings which will support you in the future. Unfortunately, a proportion of these investments continue to be channelled into industries which are fuelling the climate crisis we see around us. The climate crisis is not only severely damaging our planet but also means your pension may be worth less when you come to need it. Climate change is no longer simply considered a social responsibility issue but a core financial risk with the potential to impact business, the economy and the markets in which your pension is invested.

Evidence shows that savers’ long-term best interests will be most likely met where global warming is held as close as possible to 1.5°C (the temperature goal of the Paris Climate Change Agreement).  But, the current trajectory predicts temperature rises of 2-4°C+ by the end of the century. At this rate, studies show that global GDP could be reduced by 70% by 2100, and global equity returns by 60% by 2060. These profoundly negative effects on the global financial system will affect us all.

To help understand the scale of pension power, in 2019 UK pensions alone were invested in assets worth approximately £3.0 trillion which makes it the second largest pensions market in the world.  Pension providers can use their strength and position to intensify the response of the investment industry to climate change and ensure it is prepared for our future.

“Our pensions are funding the climate crisis, but they can be part of the solution. People want more transparency and pension funds have clear legal duties around planning for, and disclosing, climate risk that many are not living up to.”

- Joanne Etherton, ClientEarth lawyer

What is ClientEarth doing to help?

Currently your pension power probably feels inaccessible and confusing. You are not alone - people across the UK will have the same concerns as you. Our Climate Finance work is speeding up the transition to a low carbon economy. We use the law to make climate-related financial risk a key consideration for all investment decisions – including how your pension is invested