UK Pension Funds Grilled Over Financial Risks of Climate Change

The widespread misunderstanding of trustees’ duties may extend to others involved in this debate. Pension schemes are enormous investors and therefore it matters to policy makers how they invest.

Governments want pension schemes to invest in infrastructure projects that assist the country, and of course we all want them to invest in a way that assists the ecology as well as the economy of our country and our planet.

The problem is that trustees’ duties are fundamentally to provide the benefits under the pension scheme, and so in a defined benefit scheme this is about sustainable investment returns and sustainable capital value. In general, trustees are very well aware of these duties, although of course there are a variety of opinions as to which investments best achieve this.

Often when statements are made about trustees needing to understand their duty to invest in green investments because they are more financially viable, the concern that is really underpinning this is that trustees are not investing in a way that is good for the environment. That is not the pension trustees’ duty under the present law. Currently, they must invest in appropriate assets for the liabilities of their pension scheme, and it is a gross simplification of the investment process, and a statement of opinion as fact, to say that this means that they must invest in ecologically sustainable investments.

We are right, as a country, to be concerned that pension fund investment is not flowing into “greener” investments, but that is not because trustees do not understand their obligations, it is because they do. If MPs want trustees to invest in more sustainable investments, they should investigate changing the law to make this a requirement. It is not accurate to blame the trustees when they are simply complying with their obligations.