Climate aware investing – time to change?

Topic:

Hot topic

Date published:

Thursday, 1 June 2017

Author:

Wayne Phelan

When I first became a pension trustee over 20 years ago, I was taught that trustees should almost exclusively invest for financial return rather than for moral reasons. For me, that has never felt entirely comfortable.

This ‘generally accepted’ approach came off the back of the Cowan v Scargill case in 1984, where the judgment said ‘the best interests of the beneficiaries are normally their best financial interests’. That was the same year Robert Maxwell bought the Daily Mirror… now that is a lifetime ago!

Turning a blind eye

It’s easy to judge with hindsight but, for many advisers and investment managers, the outcome of this case has been read as a signal to invest for return at all costs – often turning a blind eye to the long term impact of such investments. It’s a diet we all swallowed.

For the first time in the 20 odd years I have been a pension trustee, I feel we are at a tipping point against this view. I’m not alone either.

The Institute & Faculty of Actuaries (IFoA) has just issued a warning about climate change financial risks , including resource and environment guidance for pensions actuaries.

Now, actuaries aren't really renowned for being either pink and fluffy or a bunch of sandal wearing ‘radicals’… and for me this is not a eureka moment or a mid-life crisis. It simply makes sense.

Think of the future

Whether climate change is man-made or a natural event, I am not here to debate. It is, however, happening (sorry, Mr Trump, it really is). We either sit and watch the house burn down while we debate who started the fire, or try and limit any damage done.

Thankfully, we are seeing investment managers and pension trustees get to grips with this change of focus. I guess the journey began when the Law Commission’s 2014 fiduciary duties report suggested trustees should take wider factors (including environmental and social) into consideration, but it feels we’re moving up a couple of gears now.

Changing this is up to you

Trustees and scheme sponsors hold the key to influencing how pension funds are invested and used – both in the short term and long term. Exclusion is a blunt tool when investing - it is best we do what we can to influence the ‘norm’ and have an eye to the long term.

So, the next time you are at a pension trustee meeting, maybe pause for a minute and consider whether the investment decisions we are taking now will look ‘appropriate’ in 20, 40, 60 years’ time. The world is changing faster than many of us realise - will your children or grandchildren think you made the right decisions when they look back from the future?

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