Fewer than one-in-five pension funds in North America have committed to achieving net zero carbon emissions across their portfolios by 2050 according to a study that underlines the need to accelerate the fight against climate change in the world’s largest pensions market.

Just 17 per cent of North American pensions funds aim to reach net zero by the middle of the century while a further 8 per cent expect to reach that target at a later date, according to the Aviva Investors analysis.

Four out of every 10 pension funds in both Asia and Europe have already committed to reaching net zero carbon emissions by 2050, more than twice as high as in the US where the Trump administration has played down the risks of global warming.

However, devastating wildfires in California, which have burnt more than 2m acres of land, have led to calls from pressure groups for pension funds in the golden state to divest entirely from fossil fuels. 

The investment arm of UK insurer Aviva polled 535 pension funds and 532 insurance companies from 34 countries with combined assets of more than €2tn to assess how sentiment among institutional investors was shifting during the coronavirus pandemic.

Q: Has your organisation made a commitment to achieve net zero?

The EU has created a green taxonomy to encourage more sustainable investing in contrast to the US where the Department of Labor is insisting that private pension administrators must prove that they will not sacrifice financial returns by incorporating environmental, social and governance (ESG) considerations into their asset allocation decisions. The DoL’s narrow interpretation of an administrator’s fiduciary duty which focuses purely on financial returns has restricted US pension plans’ room for manoeuvre.

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The $412bn California Public Employees’ Retirement System (Calpers) is the only US pension plan to have signed up to the UN-backed Net-Zero Asset Owner Alliance, a coalition of thirty of the world’s largest asset owners that have committed to cutting the carbon emissions linked to companies they invest in by up to 29 per cent within the next four years.

The alliance’s chair, Günther Thallinger, said “many discussions” were ongoing. “We recognise that achieving net zero carbon emissions is a very big commitment which requires big changes to the investment management processes and portfolios of pension funds,” said Mr Thallinger, who is also a board member at Allianz, the German insurer.

“Asset owners have to protect their portfolios from threats such as climate change if they are to fulfil their fiduciary duties. Pension funds have a clear responsibility to consider the climate impact of the businesses that they own as shareholders,” he said.

Almost half of the insurance companies in Europe and Asia which were surveyed by Aviva have already signalled a commitment to reaching net zero by 2050.

“Sustainable investments were seen as an expensive ‘nice to have’ through much of the last decade,” said Mark Versey, chief investment officer for real assets at Aviva Investors. “Now, however, almost eight-in-10 global investors believe that the pursuit of achieving ESG objectives is no longer at the expense of financial returns.”

Via Financial Times