Top UK pension scheme threatens managers over climate risk

Brunel toughens stance and says it will fire funds if they fail to reduce exposure

One of Britain’s largest pension schemes has given its 130 asset managers a two-year deadline to reduce their exposure to climate change or risk being fired.

Brunel Pension Partnership, which manages £30bn on behalf of 700,000 members and 10 government bodies, also threatened to vote against directors at the companies it invests in and divest if they do not demonstrate significant progress on managing climate risk by 2022.

“Climate change is a rapidly escalating investment issue,” said Mark Mansley, chief investment officer at Brunel, which manages the retirement schemes for nine local authorities and the government’s Environment Agency.

“We found that the finance sector is part of the problem, when it could and should be part of the solution for addressing climate change. How the sector prices assets, manages risk and benchmarks performance all need to be challenged.”

Brunel’s move comes at a time of heightened pressure on fund managers and financial groups over their role in financing companies that contribute to climate change. Discussions about the environment dominated last week’s annual get-together of political and business leaders at the World Economic Forum in Davos.

Lauren Peacock, campaign manager at ShareAction, the lobby group, said she expected more pension funds to take a tougher stance with their investment managers.

“All asset owners should now be scrutinising their managers’ voting record on climate issues and giving mandates to smarter, more responsible asset managers,” she said. “We fully expect this to become the new normal.”

Last year Japan’s $1.5tn Global Pension Investment Fund withdrew a large mandate from BlackRock over its lack of action on environmental, social and governance issues. The New York manager has since refocused its attention on climate risk.

On Monday, Brunel unveiled a new climate policy, which includes a five-point plan aimed at building a financial system that is fit for a zero-carbon future.

Under the plan, the pension provider said it would stress-test its portfolios under a range of climate scenarios. It will also challenge its investment managers to demonstrate reduced exposure to climate risk and show they have engaged with the companies they invest in to meet goals set by the Paris Agreement.

“Now is the time for everyone in the finance sector to show leadership in response to the climate emergency,” said Emma Howard Boyd, chair of the Environment Agency. “As investors we have a responsibility to our beneficiaries to ensure the assets entrusted to us are resilient to climate risks.”

Brunel was created in 2017 and is one of eight national pooled pension funds. Its members include the local authority pension funds of Avon, Buckinghamshire, Cornwall, Devon, Dorset, Gloucestershire, Oxfordshire, Somerset and Wiltshire.

Source: Financial Times

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