Defined benefit (DB) schemes that reduce climate transition plans to a simple tick box exercise are likely to increase investment risk or reduce returns, pension consultant Hymans Robertson, has warned.
To avoid this, trustees should focus on creating a climate transition plan that is aligned with fiduciary duty, noted the consultant.
“We support the development of transition plans. Ultimately these plans should be central to client’s sustainability strategies. Climate transition risks are more complex today and traditional measures of emissions are not telling the full story,” said Mhairi Gooch, an investment consultant at Hymans Robertson (pictured).
In addition, physical risks are “here and now” and are likely to increase in severity and frequency, added Gooch.
“Climate transition plans should be implemented to help identify and prioritise various risks that climate and nature present in order to help build resilience in the investment strategy,” she said. “They must now be seen as a strategic imperative rather than a ‘nice to have’, and so clients should avoid viewing them as such.”
With climate policy fragmented and stalling, waiting for regulatory certainty can mean missing out on opportunities as well as overexposing stagnant strategies to various risks, she also noted.
“Plans can be tailored to avoid this, and all asset owners should get ahead if they want to maximise market opportunities,” Gooch said.
Climate transition plans are most effective when focused on adapting to, identifying and prioritising action on climate related risks, Gooch added.
The consultancy said that the climate transition plans of schemes should cover four areas in the context of fiduciary duty: portfolio emissions, asset alignment, stewardship, and climate solutions.
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