A £30bn ($39.3bn) pension fund has said it will vote down boards and sack asset managers whose investments fail to meet climate targets.
The Brunel Pension Partnership, which represents local government pensions across the South West, said on Monday its money managers must move towards carbon-neutral investments by 2022 or risk being axed.
Brunel will pressure managers it works with to change their investment policies to reflect climate risk and said it would ‘stress test’ investments based on environmental concerns.
“Climate change is a rapidly escalating investment issue,” Brunel’s chief investment officer Mark Mansley said. “We found that the finance sector is part of the problem, when it could and should be part of the solution for addressing climate change.
“How the sector prices assets, manages risk, and benchmarks performance all need to be challenged.”
Brunel said the financial sector was currently “not fit for purpose” when to came to addressing climate issues. The pension fund said investment managers were too short-term focused and reliant on benchmarks that don’t reflect accurate climate risk.
“We have a climate emergency on our hands and it would be irresponsible of us to accept the status quo,” chief responsible investment officer Faith Ward said. “We need to systematically change the investment industry in order to keep temperature rise to well below 2°C.”
The Brunel Pension Partnership earlier this month took a stand against Barclays over its environmental record, backing a vote that could force the bank to stop lending to fossil fuel companies.
Calls for more environmental-aware approaches to investing come just days after the World Economic Forum’s elite Davos conference came to a close. Davos was dominated by discussions about the climate crisis and how to tackle it.
Bank of England governor Mark Carney said at Davos climate concerns were no longer a “niche” concern for investors and had become “fundamental value drivers.” Prince Charles also delivered a speech calling for root-and-branch reform of finance to reflect climate concerns and teenage climate campaigner Greta Thunberg was the star guest at this year’s conference.
“Now is the time for everyone in the finance sector to show leadership in response to the climate emergency,” said Emma Howard Boyd, chair of the Environment Agency, which Brunel manages the pension pot of.