Shell’s largest UK pension fund is under pressure from a member who says it is failing to disclose how it deals with climate risk, in what is regarded as a test case for other UK pension funds.
The £16bn Shell Contributory Pension Fund was contacted last week by Christoph Harwood and ClientEarth, the legal environmental campaign group. They requested proof of how it is dealing with the issue of climate change given the material financial risk to investments.
They warned the SCPF by letter that they would take the complaint to the Pensions Ombudsman, which has legal powers to settle disputes and complaints, if they did not receive a satisfactory response within three weeks.
“This new UK case is a timely wake-up call for the pensions sector,” said Catherine Howarth, chief executive of ShareAction, the responsible investment organisation.
“As the financial impacts and risks of climate change on pension fund portfolios become ever clearer and their investment regulations are updated, trustees have no excuse for failing to examine this topic and disclose their risk management of it.”
Pension fund members worldwide are paying closer attention to how funds are invested. In part this reflects increasing concern for the environment but also worries about how the value of investments will be affected by changing weather patterns, new regulations and consumer preferences.
Almost three quarters of fund members want their pensions invested responsibly, with 63 per cent desiring more information on this from their retirement plan, according to a survey by Nest, the UK’s £4.1bn state-backed workplace pension provider that has more than 7m members.
A high-profile legal case in Australia involving a pension fund and one if its members is bringing the issue to a head. Mark McVeigh, a member of the A$50bn Retail Employees Superannuation Trust, is taking his scheme to court for failing to disclose information on the effect of climate change on his investments and how it is addressing the issue.
California recently passed landmark legislation that will compel the $360bn California Public Employees’ Retirement System and $228bn California State Teachers’ Retirement System, two of the biggest funds in the country, to report publicly on the climate-related financial risk of their public market portfolio.
The most recent annual report for the Shell fund stated: “The trustee continues to monitor and consider [environmental, social and governance] matters including the impact of climate change and the energy transition as part of its integrated risk management.”
Mr Harwood, who worked at the oil major in the 1980s and 1990s in business strategy, sales and marketing roles, said that over the past two years he had repeatedly asked for proof that the fund is addressing the risks climate change poses to its portfolios.
“Pension fund managers need to be changing their investment strategies as we move to a warmer and lower carbon world,” he said. “All I am asking is for [the SCPF] to give us comfort that they are taking this seriously.”
The SCPF said it had responded to Mr Harwood’s questions.
“Since the issues raised here are relevant to all our members, and not just one individual, we believe it is appropriate that we cover these on a membership-wide basis through established channels such as our annual newsletter,” it said in a statement.
A recent survey of the UK’s biggest pension funds by the Environmental Audit Committee, a UK parliamentary body, judged the SCPF to be “engaged” on the issue of climate risk, an assessment that put it in the middle of the pack compared with the 24 other funds examined.
In a letter sent to the committee in March describing what action it has taken on climate change risk, the SCPF disclosed it had discussed the potential effect of climate change with Aon Hewitt, its actuarial adviser, and that it had appointed Hermes EOS, a shareholder adviser, to implement its policy on responsible ownership.
ClientEarth wrote to 14 of the UK’s biggest pension funds including the SCPF in August warning that they risk legal action if they fail to consider the effects of climate change on their portfolios.
“It could be really influential. People do look at what the Pensions Ombudsman decides,” said Joanne Etherton, lawyer at ClientEarth.