Investment consultants face major challenge on climate change advice.


This blog is about  Carbon Tracker’s  Loading the Dice against pensions which you can download here

This report is a call to action for investment professionals to look at the compelling evidence we see inthe climate science literature, and to implement investment strategies, particularly a rapid wind down of the fossil fuel system, based on a ‘no regrets’ precautionary approach.

Behaving cautiously now and acting to avoid a 1.5°C increase (let alone the 4°C outcome featured in this report) will enable future generations to secure the prosperity and quality of life that comes from a healthy planet.

It’s also about Lou Davey’s comments made on her  VFM Podcast in which she says

“From a personal viewpoint, if I was a trustee and I was presented with [an extreme warming scenario] … and was told it would not have very much impact on economic scenarios… I
would say, ‘really?’ and I would want to make sure I was given in-depth explanation of how that assessment had been made.”

This and other comments have been reported by Michael Hurley in Environmental Finance – you can read that report here



Make no mistake, the Carbon Tracker report is a direct challenge on the accuracy and  integrity of investment consultants

  • Investment consultants to pension funds have relied upon peer-reviewed economic research to provide advice to pension funds on the damages to pensions that will be caused by global warming.

  • Following the advice of investment consultants, pension funds have informed their members that global warming of 2-4.3°C will have only a minimal impact upon their portfolios.

  • The economics papers informing the models used by investment consultants are at odds with the scientific literature on the impact of these levels of warming.

Economic and scientific models do not come to the same conclusions and the idea that what’s good for the planet does not align – in the short term – with what’s good for the pocket.

Now pension trustees  have to ask themselves a tough question on fiduciary duty. Are DB sponsors, prepared to pay a premium and not grab low hanging economic fruit in favor of assets delivering long-term value? Are pensioners prepared to give up a claim on a portion of the surplus so that investment strategies can incorporate a lower discount rate – reflecting an assumption of a lower immediate return?

Are DC savers happy to have smaller pots today and lower pensions tomorrow , so that their children are not the wrong side of a Minsky moment?

These tough choices have been ducked becuase of in the early years of ESG conscious investing, ESG friendly assets , have commanded an economic premium. Investors have had their cake and eaten it. The Carbon Tracker are saying this cannot continue. There is a short and long-term price to saving the planet and the dice are loaded against pensions.

Science and economics at odds

The vast majority of climate change economic papers are
based on scientifically false assumptions

So concludes, Professor Steve Keen,  the paper’s author, and he’s clear that the impact of economist’s errors present

a major challenge to the sustainability of human civilisation, as the scientific literature asserts, and on a timescale that could occur within the lifespan of pensioners alive today.

If not directly authorised by the FCA, investment consultants are authorised through their institute the IFOA. The IFOA have not been quiet and in a recent paper , Tim Lenton said on their behalf

It is concerning to see these same economic models being used to underpin climate change scenario analysis in financial services, leading to the publication of implausible results in the Task Force on Climate-related Financial Disclosures (TCFD) reporting that show benign, or even positive, economic outcomes in a hot-house world. This jars with climate science, which shows our economy may not exist at all if we do not mitigate climate change.” (Trust et al. 2023, p. 4.)

This is very important to a profession for whom integrity is everything. Steve Keen does not accuse actuarial consultants of lacking in integrity, but of being myopic, relying on economic rather than scientific research.

However the misunderstanding came about, the upshot is the same

pension funds have unwittingly and unintentionally misled their members about the threat that global warming poses for the size and security of their pensions

The consultants in question

As with much academic research, the data necessary to draw conclusions comes from the Local Government Pension Scheme.  Ironically, LGPS does not have to report on TCFD, but do so voluntarily and enthusiastically. But LGPS funds rely heavily on a small number of consultants

The Carbon Tracker has provided a  report on consultants active in LGPS. Mercer, who have been particularly vocal in the approach they adopt. But LGPS does not represent the wider consulting to corporate DB schemes and to DC providers and trusts. We should add to the list below, Willis Towers Watson, Isio , Capita, Minerva and First Actuarial.

Mercer advise  ~38 clients in LGPS, LGPSS and various pooled funds;
 Hymans Robertson advise ~33 clients in LGPS, LGPSS and various pooled funds;
 Aon advise ~16 clients in LGPS, LGPSS and various pooled funds;
 MJ Hudson advise ~7 clients in LGPS, LGPSS and various pooled funds;
 Barnett Waddingham advise ~5 clients, and ISIO advise 4 clients in LGPS, LGPSS and ; and
 18 LGPS funds have either not disclosed their investment consultant, or don’t use one.

There is an opportunity here for this small group of consultants to come together and answer Lou Davey’s question.

Well done Lou Davey, not just for asking the question, but getting an old fogey like me off his arse to look into this important issue. Thanks too to Julius Pursail who has given me a bit of a nudge

And here you can find the Pension Regulator’s formulative position on Climate Change Disclosures

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Investment consultants face major challenge on climate change advice.

  1. Mike Clark says:

    Henry – thank you for raising this important issue with your wide audience.

    I can’t remember all the details of our AgeWage dialogue here last week, but let me flag a piece (sorry, self-promotion by its co-author) now likely to be published this week. Commissioned by government (DESNZ) and published by EEIST (led by University of Exeter) it offers pension fund trustees guidelines on transition plans in the context of climate change.

    Those who know me will not be surprised it includes RWCS (Real World Climate Scenario) thinking as well as EEIST thinking (ROA: Risk and Opportunity Analysis). I will send you a copy when I can. It referecnes as a case study a leading UK pension fund that is looking to use decison useful climate scenaros. We can expect to hear more of DUCS. I find “active beta” a helpful concept.

    We should separate “a set of scenarios as strategic advice” from the trustee SAA decision that has this advice as input. And regulatory official scenarios are a very different animal.

    I have been predicting a tipping point in the UK pensions sector around the use of climate scenarios for a while (tipping points can be positive too!). Your thoughtful and wide-ranging piece increases my confidence of its arrival.

    Best, Mike

  2. Pingback: The wrong time to lose the political consensus on tackling climate change | AgeWage: Making your money work as hard as you do

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