Corporate climate ignorance poses threat to pensions

Corporate climate ignorance poses threat to pensions

Nearly half of major companies in the highest polluting sectors worldwide are failing to weigh up how climate change will affect their businesses. The findings come from the State of the Transition report compiled by the Transition Pathway Initiative, an organisation backed by asset owners and fund managers, representing some US $14 trillion in assets.

It found that 46% of companies in the 14 highest polluting sectors, globally, were failing to factor in the impact of climate change when making long-term business decisions. The report evaluated the business plans of 274 international companies operating in 14 sectors. The industries analysed included organisations in the automotive, aviation, electric utilities, steel, and oil and gas sectors.

It assessed corporate preparedness for the management of risks arising from climate issues and the weighed up how companies were preparing for the global transition to a low carbon economy.

Disclosures Falling Short

Report author, professor Simon Dietz, said “barely 12% of companies” are reducing emissions at the rate required to meet international targets drawn up in the 2015 UN Paris Agreement on climate change. Countries signed up to the Paris Agreement pledged to take steps to limit global temperature rises to no more than 2°C more than pre-industrial levels by 2050.

Of the 274 companies analysed, researchers found that 25% failed to disclose their carbon emissions.

The Environment Agency Pension Fund, part of the Brunel Pension Partnership was one of the major institutional investors to comment on the findings. Faith Ward, chief responsible investment and risk officer for the Environment Agency Pension Fund, said the research identified “clear leaders and laggards” in sectors from airlines to aluminium.

“That gives investors an investment-relevant decision to make,” she said. “As the effects of climate change accelerate, we can expect to see more capital flow away from those companies that bury their head in the sand, and towards those companies aligning with a 2°C pathway.”

The researchers also looked to identify where there had been progress in the integration of climate change risks in business decisions. Of the 130 companies assessed last year, just 35 had improved how they integrate climate risks into business decision making.

Pensions climate threat

The Church of England Pensions Board warned that the slow pace of corporate progress could “undermine” pension funds’ attempts to manage financial risks within portfolios for their members.

“Engagement is starting to show results but not at the pace needed,” said Adam Matthews, ethics and engagement director at the Church of England Pensions Board. “The clock is ticking on irreversible climate change.

“The fact only one in eight of the highest-emitting firms are responding at anywhere near the pace required is an urgent challenge to investors. Investors themselves need to adopt an emergency footing otherwise the window to secure the change we need will be gone.”

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Minerva Analytics supports investors concerned about climate-related risks in their portfolio through its sustainability research service. This comprehensive service offers global shareholder voting research, data and screening tools based on consistent, comparable and in-depth analyses for over 3,000 global companies which is fully aligned with both TPI and TCFD, including up to 5 years of climate disclosures and target setting metrics. More information on our conflict-free corporate governance and shareholder voting research, is available here. Alternatively, to receive a complimentary sample company sustainability report please contact: hello@minerva.info

Last Updated: 14 July 2019
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