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How charities can use investments and pensions to promote climate transition

By John Ball, chief executive of the Church of England Pensions Board.

The climate and biodiversity crisis is huge.  So huge, that sometimes it can be difficult to know what an individual charity – even a large one – can do about it.  Many charities have developed environmental or climate change programmes, often starting through the enthusiasm of staff or trustees. 

An often overlooked opportunity is what any charity that employs staff or has investments can do to leverage these in support of climate transition. That may sound unlikely when the sums involved seem small compared to the size of the global economy.  But we have a power nonetheless: the power to ask questions.

Here are five questions to consider.

Is the climate and biodiversity crisis a strategic risk to your charity? 

Climate change is a systemic risk, i.e. something so big that you can’t escape it by diversifying.  For some charities, climate change may be a direct threat to operations. For others, it might be an opportunity to further charitable objectives.  Sometimes the risks aren’t obvious, for example, if your future investment income is implicitly dependent on shareholdings or bondholdings that are themselves not aligned to a below 2-degree world, does this present a financial risk?  Are there reputational risks from investments that don’t align with your green objectives?  How are the expectations of beneficiaries, funders or commissioners changing? These are all big questions. Just having a discussion of the risk with the audit committee or trustee board can be a good place to start. 

Do you have a responsible investment section to your investment policy?  

The investment duties of trustees are set out in Charity Commission guidance note CC14.  At the time of writing the Commission is consulting on updating its guidance to clarify trustees’ duties in terms of responsible investment, helpfully clarifying: “You can take a responsible investment approach even if there is no apparent direct conflict with your charity’s charitable purposes, if you can show this is in the best interests of your charity.”  This is where the risk discussion comes in.  

Some charities might take the principled position that they don’t want to have anything to do with high carbon emitting sectors. That’s a valid approach.  An equally valid approach is to differentiate; to look to invest in companies on a Paris-aligned climate transition pathway and use collective shareholder power to hold them to account.  This is what the Climate Action 100+ coalition of pension funds and investors seeks to do.  This approach may be particularly relevant to those sectors of the economy which are traditionally carbon intensive, yet also produce the technology needed for global climate transition.

Does your investment manager and/or pension provider take climate transition seriously?  

Ask your investment manager and pension provider about their approach to climate transition.  For example, are they a signatory to the UN Principles of Responsible Investment or one of the 545 asset owners and investment managers who engage with companies on climate change through Climate Action 100+? Have they made commitments to net zero

Many of the leading pension funds and investment managers now publish stewardship reports setting out their approach and performance.  These can tell you a lot about how seriously the provider takes the issue.  It might also tell you about how the pension fund/investment manager votes your shares at company annual meetings on climate-related issues.  CC14 states “Where a charity has delegated voting responsibilities to its (discretionary) investment manager, the charity should ensure that it is aware of the philosophy and processes behind its investment manager’s voting policy …[and] how its shares have been voted.”  Many pension funds and investment managers publish their voting records. And if they don’t, ask. 

Sometimes resolutions at company AGMs need a minimum number of shareholders to co-sign. Even a small holding can count.  

Are your investments in companies aligning to carbon transition? 

The Transition Pathway Initiative provides a free and publicly accessible tool that independently assesses companies’ preparedness for the transition to a low carbon economy.  The TPI tool now covers 415 global companies in the most carbon-intensive sectors, enabling you to do your own comparison of whether your investments are in sector leaders or laggards.

How green is your pension fund? 

In traditional ‘defined benefit’ pension schemes (which pay a guaranteed pension in retirement) the pension fund trustees typically make the investment decisions.   As an employer, you can ask similar questions to those asked of investment managers. 

Many charities will use a ‘defined contribution’ pension scheme, where individual members build up a pension pot to draw from in retirement.  These schemes provide a ‘default’ fund and, usually, other funds from which members can choose.  It’s worth asking about the climate and ‘environment, social and governance’ (ESG) performance of the funds on offer to your employees.  (See for more on this.)

And finally, consider signing up to the ACEVO leadership principles and use these questions to inform your own plan.

This article has been written in a personal capacity.  It has been produced for general guidance on matters of interest only, and does not constitute professional advice.  No representation or warranty (express or implied) is given as to the accuracy or completeness of the information given, and the author does not accept a duty of care in relation to any action or inaction arising.

Narrated by a member of the ACEVO staff

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