So you’ve received a positive response from other pension funds to these changes? Is it something they’re looking to implement themselves?
The response has been huge. It started to pickup throughout the whole of 2015 but since January this year we have been overwhelmed with enquiries from other pension funds. People are saying, “Can you come and talk to our committees about what work you have done? How it has worked and how did you put it together?” There has been a huge amount of interest in how to take this forward. I think they are quite encouraged, particularly once we have demonstrated our approach is a combination of investment, de-carbonisation, which has an element of disinvestment –
but it is not entirely disinvestment-driven – and also the strong commitment to engagement. We have been doing quite a lot of presentations and one-to-one peer support and not only within the UK; I have had conversations as far and wide as Australia, New Zealand and USA, so we work across time zones to help other pension funds. It has been really exciting and exhausting.
It must be a great feeling, but it sounds like a job in itself. You’re practically acting as a consultant on the subject.
Yes, definitely. We have been quite vociferous in challenging the investment [consultants] to step up. They really need to up their game and support their clients and get the message across to fund managers. Mercer have obviously been leading the field with their work in this space, but even with them, we have been very active in making sure that this isn’t just a project. We want to ensure this actually fundamentally changes the way investment consultancy goes forward, how they support their clients in thinking about the risks. That doesn’t mean that they have to radically change things but they just need to be aware of the risk. This is no different from any other risk and it should be part of that risk dashboard.
Is the message getting through?
We have heard some very positive signals from Mercer and other investment consultants. I think they have got to get their heads around a lot of it themselves to see how they can do it. The other intermediary that we have been quite active in talking to – but this is going to be a much slower project – is the actuarial profession. We feel that actuaries are incredibly well-placed with their skill base to quantify long-term risk.
How can actuaries help investors deal with climate risk?
I think they are perfectly placed to do that. The actuarial profession is the one profession that can really make a difference to climate change by translating long-term uncertain risks to near term action. Actuarial models do not place limitations on growth, despite the fact that we know climate change will limit some of those growth scenarios. There are also actuarial implications in terms of some of societal shifts that may well have on some of their longevity assumptions. I have also made the parallel with actuaries between climate change and longevity. Longevity was an issue that really wasn’t addressed at the right time and wasn’t got to grips with, so we are having to deal with the consequences of that now. My challenge to the actuarial profession is: don’t make the same mistake twice.
