On the go: Pension schemes with investments in heavy industry like steel, cement, aluminium and paper are likely to find them lagging behind the Paris agreement’s targets, with 86 per cent failing to align with a pathway to “2C or below by 2050”.
A report by the Transition Pathway Initiative, the $23tn (£16.6tn) backed project co-founded by the Environment Agency Pension Fund, and which counts the BT Pension Scheme and the Universities Superannuation Scheme among its members, found that a meagre 14 per cent of publicly listed industrials are aligned with the Paris targets.
The TPI’s report analysed 169 companies, including ArcelorMittal and Rio Tinto, evaluating the “carbon performance” of 111 of these businesses.
It found that investments in the aluminium and paper industries were performing particularly poorly against climate targets, in part because it is notoriously difficult to decarbonise paper. It is estimated that this failure represents a “$856bn market risk”.
Though investors will be buoyed by relatively encouraging figures for the shorter 2030 timeframe, with 22 per cent of companies aligned with climate change targets, the report explained this is largely due to the fact that most of the work decarbonising heavy industry does not begin until after 2030.
More drastic falls in emissions are required between 2030 and 2050, which explains why the longer-term outlook is worse.
Pension schemes with investments in these industries are likely to come under increasing pressure as the government proceeds with its “revolutionary” climate change agenda.
New measures in the Pension Schemes Act compel more rigorous reporting standards, and mandate trustees show clear understanding of and intent to make their investment portfolios align with the Paris agreement targets.
Research has shown that a clear majority of occupational scheme members consider climate change an important issue and want their schemes to take action to address it, albeit only a minority are aware of the steps their schemes have already taken.
Commenting on the report, Adam Matthews, co-chair of TPI and director of ethics and engagement at the Church of England Pensions Board, a TPI member, said: “Industrial sectors like mining and steel form the building blocks of the global economy and are some of the hardest sectors to decarbonise.
“They account for more than 9 gigatons of greenhouse gases, and key decisions will be taken by companies and investors over this coming decade that will determine the role they will play in societies’ achievement of the Paris climate agreement.”
