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The 23 trillion dollar question – how green is your pension?

 

Twenty-three trillion dollars. That’s a lot of money. It’s also the amount that is invested globally in fossil fuels, including everything from large institutional money to our own individual pensions.

Oil sands in Alberta, CanadaIs investment in fossil fuels, such as tar sands, safe? Well, not really. © Jiri Rezac / WWF-UK

Investing in fossil fuels shares (like shares of oil companies) is often considered a safe choice with minimal risk. But is it really that safe in long term? Well, not really.

Climate change will affect the value of these shares; which means that not taking climate change into consideration is a financial risk. For instance, some do not want to do anything to limit global average temperatures to within 2°C. If we (collectively) choose this stance, then how will our investments in property, insurance, health care and other areas fare if the world warms by 4 or 6 degrees Celsius? We don’t know. But I would hazard a guess: not very well. Our money is invested in real companies, embedded in the real economy, and inexorably bounded by the realities set by science.

So far, the market has not picked up on this risk in a very sophisticated way. The recently launched Carbon Tracker report is a stark reminder of the inconsistency we face as we pile more and more money into companies whose business model does not stack up against reality.

The investment chain is no doubt complex – and this lack of opacity is largely by design. On top of that, incentives are often not aligned to those of the long term investor (which include pension funds).

Finally, managers of our money are frequently assessed on how they perform relative to their peers. This is like looking side to side at your competitors as you all are about to fall off a cliff.

None of this makes too much sense for long term investors, who seek a return on their investment for their pension when they’re retired. So in the case of our pension, is someone thinking about how to protect our money and our planet from the risks of climate change? Are our investments helping to mitigate climate change or actually accelerating it?

The right time is now – for us all to ask some questions of our pension fund and its manager. Talk to your pension fund and ask what they’re doing to protect you and your savings from climate change risks? It’s our money, our future, and our planet which we can and need to secure. Take action – and help deflate the carbon bubble.

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