Pension funds have a duty to invest in climate change, say lobby groups

Pension funds in SA have a legal obligation to account for the financial effects of climate change on their investments, according to two groups lobbying money managers that pay closer attention to the issue. 

Shareholder activists Just Share and environmental law organisation ClientEarth have written to more than 50 funds in Africa’s most-industrialised nation about their duty to savers. The local industry oversees about R4.2-trillion in retirement investments, according to the groups.

Legal opinion commissioned by the campaigners shows that failing to meet the requirement on climate change “would likely amount to a breach of duty by the board of a pension fund”, they said on Monday.

Oil companies and Norway’s sovereign wealth fund are responding to climate change through steps ranging from planting forests to divesting from fossil fuels. SA is dependent on coal for almost all of its power generation, and with unemployment at about 27%, it complicates the debate about reducing this reliance, should it lead to mine closures and job losses.

The ultimate effects of climate change and the cost of transitioning to a low-carbon economy should form part of money managers’ investment strategies, Tracey Davies, executive director for Just Share, said.

“The primary reason is the fiduciary responsibility for the funds to invest in the long term.’’

SA’s 2030 energy plan sees coal-generated power dropping to less than 50% of the total, as investment increases in renewables such as wind and solar.

However, SA companies have been highlighting some of the potential costs. Anglo American Platinum, the world’s biggest producer of the metal, said on April 9 that a planned carbon tax in the country will add cost pressures for marginal and loss-making operations.

Sasol, the biggest manufacturer of fuel from coal, wants to “be part of the solution” in terms of what SA agreed to in the Paris Accord, co-CEO Bongani Nqwababa said. The company, which is held by a number of pension funds, plans to set its own emissions targets in 2020, he said.

Reaction from funds that responded to the campaigners’ questions ranged from interest in discussing the issue to asking whether they were being accused of doing something wrong, Davies said.

The initial purpose of the letters was to raise awareness.

“You’ve got to understand how exposed your portfolio is to climate policy.”

Bloomberg