Pension funds feel the heat on climate change

A study of the world's 100 largest public pension funds has found more than 60% have little or no climate change strategy. This includes a number of Australian superannuation funds.

A new report from the Asset Owners Disclosure Project shows 63% of the world's largest pension funds provide very little information on the financial implications of climate change on their investment portfolios. Some provide no such information at all.

The report assesses the funds against the recommendations of the Task Force on Climate-related Financial Disclosures, with the AODP saying the lack of strategy and disclosure could amount to a breach of fiduciary duty to members.

As part of the report, funds receive a rating ranging from AAA to D, with an X-rating reserved for those funds showing no evidence of acting on climate change risks.

First State Super is the highest ranking Australian fund, receiving a BBB-rating and ranking 13th in the world. It is also the highest ranking fund in the Asia-Pacific region.

AustralianSuper also placed in the top 20, taking out 18th spot with a BB-rating.

Further down the list, UniSuper received a CCC-rating and placed 31st, while the Future Fund ranked 41st with a D-rating.

Ranking 52nd, Rest also received a D-rating with recent legal action taken against it by a member, further demonstrating the potential risk to pension funds in not presenting a legitimate strategy for safeguarding retirement savings against climate change.

The lowest of the Australian funds, QSuper ranked equal 64th alongside funds including the UK's Electricity Supply Pension Scheme and the Ohio Public Employees Retirement System. This also attracted a D-rating.

From a regional perspective however, Australian funds did outperform those in the remaining Asia-Pacific region. In Australia, one in three funds rated BBB to B while no other funds in the region achieved higher than a C-rating.

Australia also had no funds receive a rating of X, while more than 40% of the remaining funds in the Asia Pacific did.

The top 10 was dominated by European funds, with Sweden's Fjarde AP-Fonden ranking first with a AAA-rating. The Netherlands' ABP; Finland's Varma Mutual Pension Insurance Company; Norway's Government Pension Fund Global; and the Fonds de Reserve pour les Retraites of France also ranked in the top 10.

The leading US fund was the New York State Common Retirement Fund which received a AA-rating and ranked third.

AODP analyst Felix Nagrawala said the AODP is turning up the heat on pension funds that fail to address climate change in their investments.

"Our comprehensive review of the climate-competence of the industry against the TCFD recommendations exposes those funds that are all talk and no action, and those showing real climate innovation," he said.

"Pension funds have a duty to serve the long-term interest of their members, which isn't being met if the money they invest is depleted along with the health of the planet. It's high time the industry takes action."

Just this week, the state of California passed legislation requiring CalPERS and CalSTRS to report on climate-related financial risks. The funds are expected to publish their first reports before 1 January 2020.

Read more: Asset Owners Disclosure ProjectAustralianSuperElectricity Supply Pension SchemeFelix NagrawalaFirst State SuperFuture FundGovernment Pension Fund GlobalNew York State Common Retirement FundOhio Public Employees Retirement SystemUniSuperVarma Mutual Pension Insurance Company
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