Many of the largest U.S. investment funds, including pensions, are doing nothing to protect their investors' savings from the financial risks posed by climate change, according to an analysis by the Asset Owners Disclosure Project, a nonprofit. At least 117 American funds, with a combined $4.6 trillion in assets, have taken no action to mitigate the risks associated with a warming planet.
“It simply isn’t professional for the funds to do nothing,” Julian Poulter, the group's CEO, told The Huffington Post.
Indeed, there have been warning signs for quite some time that big investors, from a purely financial perspective, need to think hard about fossil fuels. The S&P 500 stock index is up around 50 percent from 10 years ago. Oil stocks over the same period are up just over 1 percent.
And business is arguably only going to get harder. Global financial regulators are starting to work out a standard system for companies to voluntarily disclose climate risks, the governor of the Bank of England has warned insurance companies that they're at risk of being wiped out by climate change, and Saudi Arabia wants to kick its oil habit.
A 2013 report from England's Institute and Faculty of Actuaries found that under business-as-usual policies, resource scarcity associated with a changing climate could stall the global economy and cause pension funds to be unable to pay out benefits.
So what should a prudent pension fund manager do? “There are many ways to skin the climate-risk cat,” Poulter said. Funds can engage with fossil fuel companies and try to push companies to deal with the climate-related risk they face. Or they can choose to screen out companies that haven’t come to grips with that risk. They can invest in renewable energy firms and other companies that will prosper in a low-emissions world. And since the funds we're talking about are worth hundreds of billions of dollars, they could realistically do a little bit of all of the above.
The point of the analysis isn’t to be prescriptive or legalistic in telling pension funds what they should or shouldn’t do. It’s to push them to understand the reality of the climate risk embedded in their investments, and explain to their members -- whose retirements are on the line -- what they are doing (or not), and why.
What Poulter wants is for pension fund managers to realize that they can’t ignore climate change. When oil is at $43 dollars a barrel, the Paris agreement is striving to keep global temperatures from rising and “you’ve the likes of Saudi Arabia selling their main asset because they see an oil-free world,” it’s just not acceptable for pension funds to act like nothing is happening.