One industry expert has warned against political polarisation of views on climate change, while others say pension funds will be expected to provide transition capital regardless of who wins the UK election.  

Julius Pursaill, strategic adviser to fintech Cushon, called for consensus on climate policy among political parties during a webinar by Cushon about what to expect for pensions after the UK general election.  

“This stops being party political,” he said discussing the need to address climate change, having found that climate is where there are the biggest differences between the parties’ election manifestos.   

Pursaill said: “It shouldn't be [party political]. These are largely scientific facts, so we do need to deliver a consensus. We have seen what happens if you don’t.”  

While the Conservatives are pursuing their current policies on climate, Labour have said pension funds would be among the financial institutions that will be asked to align with the Paris Agreement and talk about green finance. The Liberal Democrats would give financial regulators greater powers on climate. Going further, the Green Party wants to stop fossil fuels and introduce a carbon tax. In contrast, Reform UK would cancel the UK's net zero pledge.  

Pursaill highlighted the US, where pension funds in some states will dismiss asset managers for incorporating environmental, social and governance factors, while in others they are expected or required to incorporate ESG.  

He argued that some policies are “straightforward” and have had success, such as offshore wind power, but conceded that “others will be much more painful” to implement.  

The pensions industry itself could contribute to better climate risk management by adjusting the economic models that estimate the risks, he said, echoing an argument made by the Institute and Faculty of Actuaries and the University of Exeter.   
 

 

If the models were updated to take into account tipping points, for example, it would change how pension funds address climate risk.   

“The risks will be a great deal larger, trustees will be a great deal more motivated” to invest in the green transition, or in adaptation technology, he said.  

Pursaill, who also sits on the Impact Investing Institute’s pensions panel, thinks that “we’ve gone down a rabbit hole with fiduciary duty”.

Trustees’ duty to act in members’ best interests has once again come under scrutiny as climate campaigners argue it acts as a barrier to pension funds considering addressing climate change in their portfolios.   
 

 

   
"Financial and non-financial is an unhelpful differentiation,” Pursaill said.   

The Law Commission decided in 2014 that “while the pursuit of a financial return should be the predominant concern of pension trustees... the law permits trustees to make investment decisions that are based on non-financial factors, provided that: they have good reason to think that scheme members share the concern; and there is no risk of significant financial detriment to the fund.”  

Many interpret ‘non-financial' as making an investment for its positive environmental or societal effect rather than its return potential, suggesting the two can or even tend to be mutually exclusive – a view which is contested by others.  

For Pursaill, the focus on maximising fund size is misplaced and should instead lie on standard of living in retirement.  

"The [Local Government Pension Scheme] already invests in social housing in their borough because they know it is in their members’ interest,” as members will need housing in retirement, he argued, saying a similar approach could be taken by private pension funds without the  need for new legislation or regulations.  

Pension funds will be looked to for financing the green transition regardless of whether Labour or the Tories win on 4 July, suggested Tom McPhail, director of public affairs at marketing firm Lang Cat. 

Speaking on the same webinar, he pointed to the high cost of decarbonising the UK’s electricity grid alone.   

“There is consensus now that it’s okay for government to intervene on what pension funds do with these assets. It is going to happen whoever wins the election – it's about how far we go,” McPhail said.