By Douglas Green, Fund Actuary at Hymans Robertson
The impression, such as my friend’s view of his daughter, is that climate change rhetoric and action by individuals and institutions are not always as aligned as they could be. But is this fair comment for LGPS funds?
Explicitly addressing climate change risks is a relatively new, and continually evolving, issue for funds. The whole issue can make us aware of our own ignorance – this is a complex subject with unknown impacts; it can also make us sceptical of the different approaches that could be taken to address the issue – how can we be sure what course of action is best?
Nevertheless, it’s surely better to grasp that nettle now, engage with the subject and embrace the potential benefits?
You may well have had experience last year, as I did, of having climate change protesters attending Pension Fund Committee meetings: sometimes this will have been the first time that members of the public actually attended these meetings. My personal take on this experience is the following three reasons not to be fearful:
Reacting to rebellion
If protesters challenge or ask questions, this can flummox officers and Members, and perhaps put them on the defensive. However, many funds have a good story to tell, and questioners are entitled to be told that story. Inevitably questioners will sometimes demonstrate ignorance of the workings of the LGPS, but that shouldn’t stop us engaging with them and explaining what’s going on.
Don’t wait to react, be proactive
A better position than having to be reactive is to actively seek out possible areas of challenge, and ensure your fund is not leaving itself exposed to criticism. For instance:
(a) Does the list of “top ten share holdings” in your fund’s accounts include oil or mining companies, which questioners may well hone in on? If so, provide some appropriate commentary rather than just listing them, and also consider whether you are confident that all the risks that these holdings may bring are being managed?
(b) Has the ruling party in your Administering Authority made any LGPS fund promises in their most recent local election manifesto? Again, it will be helpful to tackle that question before others assume the fund is doing what the party promised;
(c) Do your Committee papers include climate change as an after-thought or appendix, or are these comments “front-and-centre”?
It’s not just about the assets
This is a key point: to date the focus has understandably been on the share-holdings, corporate governance, and divestment options. But climate change has the potential to affect the fund’s liabilities too, via impacts on life expectancy and inflation. We have started work with many funds to identify the possible effects, which is the first step to properly incorporating and managing climate risks within your funding and investment plans.
It’s clear that public attention and calls for action aren’t going away. But more importantly there are strong reasons for funds to grasp that nettle, and benefit as a result: having a story to tell, anticipating challenges, and tackling these risks.
Is your fund doing all it could?
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