CLIMATE CHANGE THE POTENTIAL IMPACT ON PENSION SCHEMES IN UK

The climate emergency is a significant challenge for society and will likely affect us all in multiple ways for many years. It is a global, systemic risk affecting every part of the economy. Trustees and sponsors of pension plans should consider the importance of the risk in their pension schemes and understand the role they are playing in responding to the challenge, as they are crucial long-term investors and major participants in the financial system. Dealing with climate risk will cause many long-term changes: in the governance of the pension scheme, their investment decisions, funding, member engagement, covenant, and other areas where trustees are responsible. However, environmental change is not only about risk management: there are also opportunities. Taking action with regard to climate issues will bring real benefits in terms of better risk-adjusted returns, improving the security of members’ benefits, access to new assets, and many others. In this report, the process of how climate risk impacts UK Pension Schemes will be explored, what opportunities it brings and why it is crucial to managing the risk. Four possible climate change scenarios are analyzed, and their impact on assets, liabilities, and funding levels is studied. Although the work I performed in Willis Towers Watson was not directly related to the climate change risk, I was interested in this hot topic, as climate change is on today´s agenda not only for pension scheme trustees and sponsors but also for society as a whole.