Are pension funds transparent enough about their investments?
The latest report from the UN’s Intergovernmental Panel on Climate Change, published in April 2022, made clear that the window for preventing the worst of climate change is closing fast. Plans already in place are not enough to limit global warming to 1.5C above pre-industrial levels, said the report, and more must be done to accelerate the energy transition.
These efforts will require huge levels of capital. The UN has estimated that $90trn in infrastructure investment alone is needed by 2030 to build a sustainable global economy. An important pool of funding for these efforts will be the world’s pension pot.
OECD data from 2020 tallied the value of assets held by pension funds globally at $35trn, although other estimates put that total at more than $56trn.
Quickly moving this capital away from fossil fuel assets and towards sustainable investments would give a major boost to climate action, yet moving quickly is not something the pension market is renowned for.
Given their long investment horizons and risk aversion, pension funds may be naturally slow movers, but they are also particularly exposed to climate risks and are increasingly responding to the climate emergency with a greater focus on environmental, social and governance (ESG) issues.
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