Pension funds urged to better assess environmental risks

Report slams pension funds for Barclays, BAE Systems and the National Grid for not paying enough attention to environmental, social and governance risks

Many of the UK's largest pension funds are failing to assess environmental, social and governance (ESG) risks and are guilty of ignoring issues such as climate change and human rights policies when making investment decisions.

That is the conclusion of a new report into the UK's 20 biggest pension funds by lobby group FairPensions, which found that despite numerous recent reports claiming strong ESG performance frequently equates with strong financial performance, only half have a clear policy covering ESG issues. Moreover, only a fifth of the top 20 funds disclosed their voting records and only a quarter reported on their ESG strategies.

The report found pension funds' performance on environmental issues varied widely, with the Universities’ Superannuation Scheme and BA's and BT's pension schemes scoring nine out of 10 against FairPensions' criteria, while Barclays Bank plc UK Retirement Fund, BAE Systems Pension Scheme, and National Grid plc Pension Scheme all scored less than one point out of 10.

Alex van der Velden, executive director of FairPensions, said that many of these funds were taking financial risks by not paying more attention to ESG factors. "[We're] concerned that others haven't yet woken up to these issues," he said. "We hope these funds do wake up in time to avoid the next Enron-style shock."

The report comes days after a group of European and Australian pension and investment funds, including many UK public sector pension funds, called on politicians gathered at the UN climate change conference in Bali to deliver progress towards a clear international legislative framework.

In a letter to delegates at the Bali conference, the Institutional Investor Group on Climate Change argued that "credible and effective climate policy" was urgently required to help investors protect and enhance the value of their investments.