Pensions - Articles - The Divestment Dilemma facing pension schemes

 The question of divestment – the act of selling and excluding future holdings in certain investment areas - has become a key topic of discussion, especially where it can lead to ‘stranded assets’. These are assets that are worth less than expected – and offer less than the required level of return to a scheme. At worst, these assets can become worthless, while potentially incurring additional costs for their disposal.

 Jennifer O’Neill, associate partner at Aon, said: “Divestment is not a binary issue. As with any strategic investment decision, understanding the ultimate objective and a scheme’s priorities, influences and perception of risk, will impact the ability to make better decisions. With increasing expectations from regulators for greater transparency and with scheme members seeking to understand the approach taken by trustees to mitigate climate risk, many UK pension schemes have already committed to a range of divestment, engagement or hybrid approaches.

 “Divestment should now be considered as part of a scheme’s overall climate risk approach - which is broader than just reviewing their investment in fossil fuels. With this paper, we have aimed to explore the issues that are now emerging, while also outlining some guidance and potential courses of action that can enable schemes to address them as part of their overall Responsible Investment approach and as they continue to navigate the volatility of climate risk.”

 The Divestment Dilemma Helping investors navigate the challenge