The majority of pension funds are struggling with data lacking consistency and the inability to make comparisons, according to the annual survey from CACEIS on how pension schemes are tackling climate risk in their investment strategies.
The results showed that 72% also require improved reporting of ESG and carbon data.
The survey found that even though 79% of pension schemes say climate risk is high on their agenda, quantifying how climate risks will impact pension scheme investment still lacks understanding.
Even though climate risks are becoming more visible, CACEIS’s survey found that views on the impact climate risks can have on a scheme’s investments had changed only slightly since last year.
Only 23% of respondents believed that climate change would have a “high impact” on their scheme’s investments.
On the contrary, over 70% of respondents believed climate change would have either a “medium” or “low” impact of their scheme’s investments.
“It’s important to recognise that climate change is multi-faceted, and some risks may be less obvious than others,” said Pat Sharman, country managing director, UK, for CACEIS.
“In our survey, 37% of pension schemes focused on the transition risks of climate change, while only 13% are looking at physical risks, which in fact, are just as challenging to pension schemes because of the impacts that extreme weather events can have on the companies and issuers in which we invest.”
Managing investment risks and regulatory requirements were found by the survey to be the main reasons pension schemes are looking at ESG and climate risks, with 65% and 59% of respondents stating that as a reason respectively.
The survey found, however, that only 11% of pension scheme independently verify their scheme’s exposure to ESG and climate risks. 80% of respondents were found to rely on their consultants or asset managers to address these risks.
However, CACEIS said in a statement that without access to consolidated, high-quality look-through data, understanding and subsequently taking action on tackling climate risks in their scheme investments becomes increasingly difficult for pension schemes.
The survey by CACEIS highlighted that 69% of pensions schemes need access to data to measure climate risks from their scheme investments.
By addressing and reducing data barriers for pension schemes and trustees, governance can be strengthened and can add momentum to assessing and addressing climate risks of their investment portfolios.
The availability of look-through data specifically, will help put asset owners on a level playing field when engaging with their asset managers, argued CACEIS.
“Climate change impacts schemes of all shapes and sizes. There is a need to create a level of informed independence in how all exposure to ESG and climate risks are assessed and monitored, and how their investments are impacted by the physical and transition risks of climate change at a portfolio, sector and security level,” said Pat Sharman, country managing director, UK, CACEIS.
“However, data challenges shouldn’t stop the pensions industry taking action as this is improving rapidly. Companies are updating their plans to decarbonise in the future and reach net zero. As an industry we need to be proactive in using this information to manage our investment decisions.”