UK firms act on climate, but not its risks to worker pensions

British researchers with ShareAction, an NGO designed to promote sustainability goals through pension funds, say there’s a troubling mismatch between the climate change commitments companies are making publicly – which are good – and the neglect in pension plans they’re providing to their workers.

That’s according to a new study of 25 FTSE 100 companies that have large defined-contribution plans for their employees, including Barclay’s Bank, Sainsbury’s, Unilever UK and British Airways. They’re among the 15 companies that responded to the survey, while UK Shell, Prudential and eight others did not. The research looked at £17.5 billion in assets under management, affecting a million participating workers.

“National Grid, for example, has set ambitious public targets to reduce the company’s carbon footprint by 80 percent by 2050,” said ShareAction. “However, the pensions savings of National Grid employees working to implement this commitment remain stuck in a business as usual investment fund that does little to manage the financial risks of climate change.”

What ShareAction found were only two – HSBC Bank and RBS – that changed their default plans to limit the exposure risk to carbon-heavy or climate-threatened investments. This “default setting” matters because 92 percent of all members in a defined plan invest in the default strategy, according to the UK Pensions Regulator.

At the same time, the research finds that 13 of these 15 major UK companies are taking action to address climate risks to the corporation and its shareholders, but not the savings of their workers. That’s a concern for someone just starting out who can expect to retire in 2060 with climate risk accelerating, and workers are becoming more proactive about knowing where their money is going.

For example, more than 80 percent of global coal reserves have no value if they can’t be burned because we need to stay within the 2C warming limit. Extreme weather events or sea level rises pose a risk to a range of property or agriculture assets. A member of Shell’s DB pension plan has threatened legal action over their lack of transparency and climate risk disclosure about their investments.

Yet only three of the companies have done stress testing of their retirement-plan investment mixes, while eight of them have had discussions with their investment consultants about their sponsored plans.

“It’s no secret that companies taking credible action on climate and other sustainability issues are doing a better job of hiring and retaining talent,” said Paul Britton, a research officer for ShareAction and lead report author. “That these employees’ pensions are exposed to unmanaged climate risks is wrong and will send alarm bells ringing. These schemes will pay pensions deep into the 21st century.”

The world’s leading climate scientists have warned there are only 12 years for global warming to be kept to a maximum of 1.5C, beyond which even half a degree will significantly worsen the risks of financially damaging droughts, floods, extreme heat and disruption for millions of people. ShareAction said it hopes the report will help UK employers to better protect their staff against climate risks and to benefit from green growth opportunities.

A copy of the complete ShareAction report is available here.