15th June 2017

Sri Services: Climate risk

Pension Actuaries warned of Climate Risk

As users of our Fund EcoMarket and SRI Services websites may know, I have long been of the view that pension investors pay far too little attention to climate change risk, which is likely to affect longer term investors more than shorter term investors.

It was therefore with great interest that I heard actuary Nico Aspinall presenting on this topic at a recent Transparency Symposium.  His message was that The Institute and Faculty of Actuaries (IFoA) had recently published an ‘alert’ to all memberscalling on them to consider climate related risk.

Their press release started as follows:

IFoA warns on climate change financial risks

12 May 2017

The Institute and Faculty of Actuaries (IFoA) has today (12 May) issued a Risk Alert to raise awareness around the financial risks posed by climate change. We are asking all actuaries, whichever field they are working in, to consider how the implications of climate change affect their work, actions and decision making.

The IFoA alert is intended to draw attention to specific areas of actuarial activity, asking members to think carefully about the consequences of actions they are taking. There is an increasing body of evidence demonstrating that climate change represents a material risk to future economic stability.

This alert marks a turning point in the ‘should they/ shouldn’t they’ consider climate change debate – finishing firmly on the ‘yes, they should’ side – in stark contrast to the views of our friend Mr Trump.

The risk warning itself starts with the ominous wording as follows:

Risk Alert: Climate related risks

Actuaries should ensure that they understand, and are clear in communicating, the extent to which they have taken account of climate-related risks in any relevant decisions, calculations or advice.

This Alert is relevant for all members

Subject matter

There is an increasing body of evidence demonstrating that climate-related issues represent a material risk to future economic stability affecting environmental, societal and governance matters. Many clients of actuaries are exposed to this risk.

This indicate that any actuary (pensions specialist or otherwise) who fails to consider climate risks would be falling short of the guidance issued by their professional body if they fail to consider this area.

In addition to this risk warning additional guidance was also issued to pensions actuaries in the form of a report (see below), to raise awareness of the risks relating to ‘resources and the environment’ - many of which indicate the causes of their concern to be climate related.

This new ‘risk alert’ and report follow on from the global Task Force on Climate-related Financial Disclosures (TCFD) draft guidance for companies and financial institutions on how to report climate related financial information.  The TCFD was formed as a result of the Paris Climate talks in December 2015.

Links to these resources are available here:

• IFoA climate risk Alert
•  ‘Resource and Environment Issues: A Practical Guide for Pensions Actuaries’ report  (a pdf guide)
• Taskforce on climate related financial disclosure

Although I suspect that as with any group of individuals perhaps not all financial advisers are either interested in (or particularly well equipped to deal with) questions about climate change.  However, our view is that, this message to actuaries should, been seen as a heads up - a warning perhaps – that this area should also be considered by financial advisers also. 

The links above give a very clear outline of the issues from which IFAs can better understand investment implications, but they do not help address advisers’s need for practical support in this area.  For this I would suggest our fund tool Fund EcoMarket. 

Finding pension and investment options to match your clients’ climate related aims:

Examples of ways you can meet your client’s aim to invest in ways that take climate risks (and opportunities) into account include the following:

This includes:

• find retail funds with Sustainability or Environmental Themes using the ‘SRI Styles’ filter
• find fund specific policy information such as ‘has a climate change policy’, ‘excludes coal, oil and gas’, ‘limits exposure to carbon intensive industry’ and/or ‘invest in clean energy companies’ by using the ‘SRI Policy’ filter
• find more generic information such as ‘boutique/specialist fund manager’, or ‘favour cleaner, greener companies’, ‘balance company pros and cons/ apply best in sector selection’ by using the ‘SRI Features’ filter
• Identify and research related companies that have ‘Corporate Activity’ features that mean all their investments (across all funds) have had climate risk taken into account

This ‘information only’ tool is free to use as it is sponsored by fund managers – and there are absolutely no strings attached... 

It is designed primarily for IFAs and shows only information that is not available from your regular service providers.  It has both a built in fact find (you can send the url to your client without them clicking back to the fund research tool) and there is a full reporting function for your audit trail.

The options shown above are representative of the many different ways fund managers respond to climate risk – and also point to some of the opportunities climate risk can present for investors who are ‘ahead of the curve’.  They are also representative of the often nuanced and diverse needs different individual investors often have … so please do not lose heart when you see how many climate related areas there are!  

The reality is that there is no single perfect way to address climate risk and clients often want different things.  Different strategies - such as avoidance, thematic investment and responsible share ownership may at first glance appear to be very different – but in practice they often have much in common and frequently complement one another.  The biggest risk of all, particularly for longer term investors, is ignoring the area...    which is clearly increasingly untenable.

We have recently been upgrading Fund EcoMarket and are gradually building up our ‘Help’ area.  We plan to run events to help financial services professionals to understand this area better - but in the meantime if you need help please don’t hesitate to contact me on julia@sriServices.co.uk!

(Note – the Fund EcoMarket filters listed above are linked to primary OEIC and SICAV funds shown on Fund EcoMarket. Linked Life and Pension sub funds can be ‘read across’ to these entries where fund names are identical. )

Ethical/ESG, Investments