Report review

Sustainability Accounting, Management and Policy Journal

ISSN: 2040-8021

Article publication date: 3 July 2010


(2010), "Report review", Sustainability Accounting, Management and Policy Journal, Vol. 1 No. 1.



Emerald Group Publishing Limited

Copyright © 2010, Emerald Group Publishing Limited

Report review

Article Type: Report review From: Sustainability Accounting, Management and Policy Journal, Volume 1, Issue 1

Pension Fund Trustees and Climate ChangeThe Association of Chartered Certified Accountants (ACCA)Research Report 106

Pension fund trustees and climate change: one year on report Jill SolomonKing's College London,University of London LondonDiscussion Paper

Keywords: Climate change, Pension fund trustees, SustainabilityReview DOI: 10.1108/20408021011059304


The purpose of the two reports is to investigate the attitudes and responsibilities of pension fund trustees towards climate change. Whilst the first report investigates the interest and awareness in climate change issues, the second report conducted 12 months later examines how trustee views changed during that period and the extent to which awareness is being translated into action.

The research approach is based on a soft system methodology and action learning research where the intention is to have both action and research outcomes. The methodological framework provides for the interviewer to engage with and influence participant behaviour.

It is found that whilst pension fund trustees are interested in the impact of climate change, there is a significant lack of awareness and understanding of the potential of climate change to affect pension fund management and little indication of engagement with relevant stakeholders.

Whilst the study was undertaken on UK pension fund trustees, the findings have universal application. The report provides a valuable insight into the attitudes of pension fund trustees and provides a useful framework from which to facilitate policy development in climate change issues. However, the general reluctance of pension fund trustees to participate in the study does question the extent to which the findings are indicative of the wider trustee community.

This is the first study to address the views of pension fund trustees towards climate change and provides a useful contribution to the establishment of a climate change blueprint for policy development.

Report review

There is no doubt that environmental, social and corporate governance (ESG) has become a much-debated and discussed issue within the investment community over the past decade. Investment professionals across the investment chain are facing increased pressure to integrate a wide range of ESG issues into their investment decision making. There is a general acceptance that ESG issues do present a number of risks but also long-term opportunities that organisations need to appropriately manage for their long-term growth and survival.

Despite the generally disappointing outcomes of the recent United Nations Climate Change Conference held in Copenhagen in December 2009, the effects of climate change and global warming have become one of the biggest challenges facing society. Owing to the significant amount of member funds held in pension funds around the world, there has been a considerable debate within academic and practitioner circles around two issues. First, the extent to which pension funds have a responsibility to actively exert power and influence over their investments as part of the process of effectively managing their portfolios. Second, attempting to clarify the role and fiduciary obligations of pension fund trustees in terms of how they manage the risks and opportunities of their investments.

In light of the on-going debate, these two reports by Professor Jill Solomon provide a timely and informative insight into the attitudes and views of pension fund trustees towards climate change. Much of the largely industry-based research conducted to date has found a considerable level of confusion within the investment community over how non-financial issues such as climate change should be accounted for, the link between these non-financial variables and financial performance and the extent to which trustees have an obligation and fiduciary responsibility to appropriately account for climate change and ESG issues generally within the management of their pension portfolios.

The aim of the two reports was to investigate the attitudes of pension fund trustees towards their responsibilities and obligations in respect of climate change; specifically:

  • investigate trustees' attitudes towards their role and responsibilities in relation to climate change;

  • discover whether trustees are harnessing their power to effect change;

  • identify obstacles; and

  • make policy recommendations.

Whilst the scope of the research is based on UK experience, the findings have universal application and will be of interest to both the academic and practitioner community that have an interest in promoting the debate of the effects of climate change within investment decision making and portfolio management.

To gather data for the reports, Solomon initially interviewed 20 trustees of UK pension funds whose sponsor companies were selected from the FTSE100 and in the follow-up report conducted 12 months later, half of the original sample of trustees were again sampled to determine the extent to which their views and attitudes had changed since the initial interviews. Part of what makes this research unique is the research methodology adopted by Solomon in her two studies. The research is derived from soft system methodology and action research where not only does the author become part of the research but also feels she has a responsibility to influence and affect the interviewees and raise their awareness in an attempt to change the current situation "for the better". Semi-structured questions are used to provide a richer and more in depth set of views of the trustees than could otherwise be achieved through a more rigid structure such as questionnaires or structured interviews that are typically used more as a data-gathering tool.

The initial research report begins by summarising the literature and policy documents relating to the role of pension fund trustees in incorporating ESG and responsible investment issues generally, and climate change specifically, into pension fund investment. Evidence derived from the largely industry-based reports conducted to date reveal that whilst the economic influence of ESG issues and climate change specifically are generally recognised by investment professionals, this recognition has yet to be integrated within mainstream investment behaviour.

Section 3 deals with the research methodology adopted by the report. A number of issues with the methodology deserve further mention in terms of their potential impact on the validity of the findings. First, whilst the initial list of trustees was to be selected on the basis of sponsor companies listed on the FTSE100, due to problems of persuading trustees to participate in the study it was decided to make up the sample numbers by utilising volunteers from other pension funds. Whilst general details of the type of pension funds used within the sample are provided within the report, there is no reference to the nature of the volunteers that were interviewed, how many volunteers were included within the sample of 20, or the type of pension fund they represented. The report acknowledges that many interviewees were volunteers and accordingly the sample is likely to be biased towards those having some sort of interest in climate-change issues. The extent to which the findings of the views and attitudes of the sample of 20 trustees can therefore be generalised to the overall trustee community is open to question. Another issue is the extent to which the views of the 20 trustees are indicative of the overall population given the expressly stated aim of the researcher to influence and change interviewee behaviour. Whilst one of the aims of action research is for both the researcher and practitioner to gain knowledge through participation in the project, action research does open itself up to criticisms of internal and external validity.

The emerging themes emanating from the research are presented in Section 4. The overall findings indicate a generally low level of trustee awareness and engagement in climate change issues. Some of the important themes raised include: general confusion over whether climate change is actually part of a trustee's fiduciary obligations, the lack of trustee's understanding or connection of the relationship between climate change and financial returns of the fund, the lack of engagement by trustees over climate change issues with asset managers and particularly pension fund members, and the perception that the integration of climate change into investment decision making is undertaken as part of an ethical or moral decision rather than as a means of more clearly identifying the long-term risks and opportunities associated with portfolio management. The report concludes by providing a number of recommendations which include the need for further research into the engagement links that exist between the various intermediaries involved in pension funds and the establishment of a government-backed Code of Practice on climate change.

In the second research report, conducted 12 months after the initial report, Solomon re-interviewed half of the original sample with a view to ascertaining whether trustee attitudes and activities on the effects of climate change had changed over the intervening period. Given, the advent of the global financial crises (GFC) during this period, one of the interesting aims of the report was to consider the extent to which the financial crises had affected the views of the sample of trustees over climate-change issues. Participants were again interviewed within an action research methodology. The findings of the second report identified that trustees were much more aware of their roles and responsibility towards climate change issues and a number of trustees had acted upon a number of climate related issues within their organisation. However, whilst the awareness of trustees towards their engagement with asset managers and fund members had been raised, there was little if any evidence to suggest that awareness had been translated into action. In terms of the impact of the GFC on the attitudes of climate change, despite the report's expectation that pension fund trustees would relegate the importance of climate change within their decision making, it was interesting to note that the majority of participants stated that their attitudes had not significantly changed.

Whilst the findings of the second report provide some optimism that pension fund trustees have a better understanding of climate change issues and a greater awareness of the impact of climate change of portfolio management decision, the results are largely consistent with a number of other industry reports which find a similar lack of action on ESG issues generally within the investment community. One of the main contributions of the report is the provision of a set of policy recommendations with regard to raising awareness and action on the issue of climate change within the trustee community. Issues cover the need for further training of trustees; the need for pension fund members to more actively engage with their fund trustee in order to instigate action; the need for more active engagement by trustees with their asset managers to ensure climate change issues are being properly accounted for; to consider whether the composition of the board of trustees of the fund may be restricting the fund in more fully integrating climate change and ESG issues into investment decision making, and perhaps not surprisingly, trustees would prefer a voluntary set of climate change guidelines and a Code of Practice in preference to government-imposed regulations.

One of the main limitations of the reports is the extent to which the findings can be generalised to the wider trustee community. Given the composition of the sample used and the nature of the research methodology undertaken which had the express aim of influencing the behaviour of the sample of trustees, the findings relating particularly to the second report are therefore hardly surprising and potentially limiting in terms of what they reveal about the changing attitudes of the overall pension fund trustee community towards climate change.

Overall, the research does provide a valuable insight into the views of pension fund trustees towards climate change and the findings will add to current knowledge and facilitate greater awareness and debate within investment circles. It is hoped that the report will encourage further research into this important area, especially within academic circles, and provide the basis for effective policy development.