Insights

Pension Fund Trustees: Ignoring Climate Change is No Longer an Option

Ignoring climate change is no longer an option for pension fiduciaries given the overwhelming scientific consensus about the causes and implications of global climate change.

As much as 10% of a fund’s portfolio risk exposure within the next twenty years, will arise from climate change and its effect on technology, resource availability, and regulatory and other impacts, according to the 2015 update of the Mercer Report.[1]

Climate change will unequivocally have an impact on investment returns such that it needs to be regarded as a new return variable.”    – Mercer Report, 2015 [2]

Pension plan trustees, in particular, have a fiduciary duty to provide a retirement income for employees upon retirement. According to BC’s new Pension Benefits Standards Act, plan investments must take into account the plan’s liabilities, and must not be unduly risky.[3] If climate change is relevant to an investment, it must be considered.[4]

The two most significant categories of risk introduced by climate change that pension fund trustees must address are: [5]

  • The physical risk of destroyed assets or assets with diminished value. This includes coastline real estate, drought- or flood-vulnerable assets, and sectors that depend on weather predictability, such as agriculture and insurance.
  • The regulatory risk of stranded assets or assets with diminished value. There is an extreme likelihood of government restrictions on the use and production of fossil fuels considering the significant international concern over greenhouse gas emissions.

Traditional diversification across asset classes is now insufficient to mitigate the portfolio risks of climate change.[6] Instead, diversification must take place across sources of risk, including increased allocation to climate positive assets.[7]

Because pension plans have regard for long-term assets, they must also be aware of long-term liabilities – the two sides must be aligned. [8] Portfolio de-carbonisation, ESG, and thematic investing are more important than ever.

[1] Mercer LLC, Carbon Trust and International Finance Corporation, “Climate Change Scenarios – Implications for Strategic Asset Allocation” February 2011, 7, as quoted in Koskie Minsky LLP, Murray Gold and Adrian Scotchmer, “Climate Change and the Fiduciary Duties of Pension Fund Trustees in Canada,” Sept 2015, 24.

[2] Mercer LLC, International Finance Corporation and UK Department for International Development, “Investing in a Time of Climate Change,” April 2015, 7.

[3] Bill 38, Pension Benefits Standards Act, 4th Sess, 39th Leg, British Columbia 2012, (assented to 31 May 2012) s 2(b), as quoted in Koskie Minsky, “Climate Change and the Fiduciary Duties,” 10.

[4] Koskie Minsky, “Climate Change and the Fiduciary Duties,” 23.

[5] Ibid., 25.

[6] Mercer, “Investing in a Time of Climate Change,” 61.

[7] Mercer, “Climate Change Scenarios”, supra note 59 at 1-2, as quoted in Koskie Minsky, “Climate Change and Fiduciary Duties,” 24.

[8] Koskie Minsky, “Climate Change and the Fiduciary Duties,” 11.

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on email
Email

Client impact

“Graduating from a big bank to Genus was one of the best financial steps we've ever taken. Genus has delivered reliable asset growth despite our moderate risk tolerance. As our financial security has grown, we've also been the beneficiaries of a great client experience. The company's communications have been consistently transparent and informative, including educational webinars and a well-designed web portal where we can track investments daily. Most importantly to us, our portfolio manager has always responded swiftly and thoroughly to our questions and requests. ”
Martin T.
"Having relatively diverse financial goals and needs, along with a slight reticence regarding the stock market, Genus skillfully addressed all of our concerns, and put together a truly exceptional plan: Fossil free funds and a diversified investment portfolio, check; An effective Impact investment portfolio that coincides with our hopes and dreams for a better world, check; Professional advice and assistance to create a donor advised charitable fund with immediate charitable receipts for tax purposes, check. Returns? Way beyond our expectations! We even had some fun along the way and certainly enjoyed an incredible two-year start to what will be a satisfying long-term relationship with Genus."
Marc B.
“I love the service I get at Genus.”
Chris H.
“Leslie and I were fellow board members when we met twenty years ago. For the last ten she has been thoughtful in the construction of an investment strategy for my family and is executing the strategy as planned. The team at Genus has met my expectations and are a pleasure to deal with.”
Bob Q.
“For over 15 years, I have provided selection and performance evaluation of multiple investment managers for a significant family office. Leslie and Genus have been foundational for me in my role. I have always found Leslie and her colleagues to be insightful and proactive, and found the performance of their portion of the portfolio to be well above benchmarks. And they have been a great pleasure to work with.”
Douglas H.
“Genus is a very innovative firm. I am pleased to invest in their Fossil Free and Impact strategies that help me invest in line with my values.”
Marnie C.
“Great team of professionals. Excellent website and reporting. Responds to inquiries promptly. Very pleased with the process of changing from another company to Genus as well. Kudos.”
David L.
“Genus consistently provides a good, clearly explained, comprehensive picture of the general economic and financial situation, along with an excellent account of the investment decisions made in relation to this. Genus’ equally strong concern with clients’ questions and requests for further information is also a very important part of the service it provides.”
Allan S.
“Back in 1992 when I found myself at fifty with a substantial amount of money to invest, I knew just one thing — that I didn’t want to contribute to tobacco companies, arms manufacturers, or oil. But over the ensuing years the options for socially responsible investing have become far more sophisticated and I’m very happy that this is a big part of the Genus approach. I also very much appreciate the long-term relationship with my portfolio manager, Mary Lou.”
Ann P.

As seen in

Are you ready to make an impact
with your investments
?