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3rd November 2021

COP 26: Mark Campanale on Covid, climate and pensions

Mark Campanale

The Covid-19 pandemic has upended the global economy and shaken public faith in the ability of governments to act decisively in the interests of citizens during a crisis.

Yet the unprecedented, disruptive policy actions taken to lockdown economies and reduce Covid transmission have exposed the unwillingness of politicians to seriously intervene in another looming crisis, from which it is not possible for us to self-isolate. Climate change.

In the absence of swift policy action by national governments to deliver on the promise of the 2015 Paris Agreement, many business leaders are now asking themselves what they can do to prepare their firms and staff for a future increasingly disrupted by climate change. 

One of the most powerful levers we have at our disposal to fight global warming is finance. Where we invest today, shapes our future tomorrow – yet most of us currently have little visibility or control over where financial assets like our pension funds are invested. This needs to change. 

Some 79% of people polled for Good Money Week 2019 agree that we are responsible as individuals to take action to combat climate change, yet 76.5% of us remain unaware that our pension has an impact on the environment at all.

The disconnect between public attitudes on climate and financial sector investment practice, means consumer pressure is not being applied to decarbonise our pension funds. 

An analysis by Telegraph Money of the 10 biggest pension providers’ default funds found that pension fund money had been sleepwalking into stocks that were negatively affecting the climate, with only one of the top-10 funds, Nest, having no fossil-fuel producing firms among its largest investments.

This is one area where business managers can take an active leadership role, creating space for conversations on pension fund investment choices, and ensuring fossil fuel free alternative investment options are made available for staff.

Where company pensions are invested is a top 10 issue workers would like to discuss with their boss – with Good money week polling finding 12.6% of workers wanted to discuss issues such as pension investments in arms, tobacco and fossil fuels and potential alternatives.

Research by Royal London has found 40% of people want to be offered fossil free investments ‘as standard’, but with a strong age gradient – 54% of under 35s support this proposition compared with only 34% of over 55s.

In July 2020, it was announced the Nest pension fund with 9 million UK members would begin divesting from fossil fuels to ensure alignment with the Government Net Zero strategy.

Reducing fossil fuel investments is no longer viewed as an ethical or moral imperative alone. With the energy sector the worst performing sector over the past decade, money managers have a fiduciary duty to manage the investment risk posed by fossil fuel investment in a rapidly changing world, where energy transition continues apace, and future demand for oil, gas and coal is no longer assured.

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