More than 60% of the world’s largest public pension funds have “little or no strategy” on climate change, according to new research. 

According to the Asset Owners Disclosure Project (AODP), part of responsible investment campaign group ShareAction, 63 of the world’s 100 largest public pension funds provide very little to no information on the financial implications of climate change for their portfolios.

It said this put them at risk of breaching their fiduciary duties.

Only a handful of public pension funds, mostly based in Europe, were showing “true leadership on climate change, demonstrating robust approaches to aligning their investments with the low-carbon transition”, AODP said in its assessment of the funds’ response to climate-related risks and opportunities.

The analysis, which it said was the first to be published about pension funds using the framework developed by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), formed the basis for a rating and ranking of the funds.

Sweden’s AP4 and France’s Fonds de Reserve pour les Retraites (FRR) were the only funds to receive the top AAA rating.

The lowest-ranked European funds, graded ‘D’, were the Railways Pension Scheme and the Electricity Supply Pension Scheme in the UK, Sampension in Denmark and BVK in Germany.

The other UK pension fund captured by the research – Universities Superannuation Scheme, the country’s largest – was rated CCC, with ShareAction’s AODP noting that the UK funds were lagging some of compatriot insurance companies and smaller pension funds.

Several well-known Dutch and Nordic pension funds were assigned ratings in the BBB to B and CCC to C rating brackets.

Mickaël Hellier, head of responsible investment at FRR, said: “Being recognised as a leader with an AAA rating in the AODP 2018 pensions index reflects the work FRR is doing to address climate change as a long-term material financial risk.

“We value this report by AODP, which highlights that the industry has a long way to go in accounting for climate change in investments and working to accelerate the transition to a low-carbon economy.”

The AODP also calculated that the world’s 100 biggest public pension funds were investing $90bn (€78bn) in low-carbon technology, representing less than 1% of their combined assets of more than $11trn.

Only 10% of the assessed pension funds had introduced policies to exclude coal from their investment portfolio, added the AODP.

European and UK pension fund rating distribution

AAA to A bracket: AP4, FRR, ABP, Varma, Government Pension Fund Global, AP3, Ilmarinen

BBB to B bracket: PFZW, BpfBouw, AP7, AP2, ATP, PFA Pension, Keva, AP1, PME, PMT

CCC to C bracket: USS, PensionDanmark, AMF Pension, Alecta, Publica

D: Railways Pension Scheme, Sampension*, Bayerische Versorgungskammer (BVK), Electricity Supply Pension Scheme

The full report can be found here. 

* Sampension recently announced that it was adopting the TCFD reporting guidelines.

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