Save world With pension funds
There is significant green power in people’s pension pots, and it’s time to use it more effectively, writes
Almost every council in Scotland has declared a climate emergency. It’s a move which illustrates to the public and businesses just how grave the situation with climate change has become.
In response to the climate emergency many cities, regions, businesses and investors are committing to be net zero by 2050 at the latest. Nicola Sturgeon declared a climate emergency in April 2019 and the Scottish Government has committed to a net-zero society by 2045 – five years before the rest of the UK.
Even among those which haven’t yet declared a climate emergency or set a net-zero commitment, there’s acknowledgement of a major problem about which something has to be done urgently.
So far, commitments to take climate action by council leaders have been backed up with various initiatives, such as replacing council car fleets with electric vehicles, the proposed introduction of low-emission zones for greener cars, and bicycle hire schemes to encourage people to swap four wheels for two as they travel about Scotland’s towns and cities.
But perhaps their biggest power could be the impact of the decisions they make about where to invest the pension savings.
Scotland’s local government pension schemes serve more than 500,000 pensioners and members, with the largest being the Lothian (assets of about £8 billion) and Strathclyde (assets of more than £26bn) schemes. Their potential to invest for the good of the planet is enormous. Now, as we get ready for COP26 in Glasgow, the Scottishbased Global Ethical Finance Initiative (GEFI) is working with local government pension schemes to help them overcome the challenges on their net-zero journey.
Net zero means achieving a balance between the greenhouse gases put into the atmosphere and those which are taken out, and it is clear that one of the biggest challenges will be developing a credible plan
to achieve this. More than 80 senior finance leaders from across the world met last month following the launch of our paper for pensions providers and the path to net zero. The paper identifies the key challenges faced by pension funds in their net-zero journey: accurate and complete data on the climate impact of investments; lack of knowledge for pension fund trustees and staff; and failure to commit to climate action. The paper considers questions such as “is divestment the answer?” and “can pension providers ignore climate change?”
Many climate activists are pushing schemes to pull their money out of polluting companies immediately. That might send a strong message, but we don’t believe divestment is the primary strategy that should be used. It simply moves the problem elsewhere, and a more effective approach is active engagement to encourage positive change.
It’s not just environmental campaigners who are demanding this action. Government and consumers want it too. In fact, you only need to look at policy papers from major political parties to forecast that there will soon be legal as well as reputational obstacles in making money from investments that damage the planet.
Climate risk is a financial and a reputational risk. That’s why schemes in Scotland should get their house in order now and, if done correctly, they will even have a business model and expertise to export to the rest of the world. A recent Aviva survey showed twothirds of millennials thought it should be mandatory for pensions to achieve net-zero emission status by 2050.
GEFI has also conducted its own research in Scotland into attitudes around climate change and leadership.
The latest Yougov poll found more than half of Scots don’t trust world leaders to come up with a solution to save the planet at the United Nations’ COP26 summit although 60 per cent felt the talks would be critical in addressing the climate emergency. Two-thirds think Scottish financial institutions have a vital role to play in reducing emissions. More than a third said they only want their money invested in companies who have a positive impact on the environment.
If confidence in world leaders is low when it comes to solving the climate crisis, it’s clear others have to step up. That’s why big business and financial institutions, not just in Scotland and the UK but across the whole world, need to take major responsibility.
There is significant green power in people’s pension pots, and it’s time for that to be used more effectively. So what can Scotland’s pensions providers actually do to become net zero, or at least set out now on a path to get there?
GEFI’S ‘transition roadmap’ will set out specific actions for pension providers to take action now on their climate journey.
As Adam Matthews, the director of ethics and engagement at the Church of England Pensions Board’s investment team, puts it: “Setting a long-term net-zero target is the easy part; the challenge is to have a credible and transparent framework that enables your fund to convert intent into practical decisions and actions.”
Commitment from pension providers to this roadmap will raise Scotland’s profile as a country serious about a sustainable and even prosperous journey to net zero, and this would happen while the eyes of the world are looking to an event in Glasgow to come up with exactly these kinds of solutions.
Natalie Jackson is lead author of the Global Ethical Finance Initiative report, Pensions providers and the path to net zero. GEFI drives positive change in the financial sector to take action on the UN Sustainable Development Goals, working with partners including the Scottish government and the United Nations Development Programme