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Quarterly issue 4

Pension funds must reach net zero emissions by 2050

Author: ICAEW Insights

Published: 03 Dec 2020

Pensions contribute to the climate crisis, so the finance industry must do more to promote a cleaner planet. Tony Burdon, CEO of Make My Money Matter, explains why retirement savings hold the power to build a better world.

It really is like one of those Hollywood movies where the Head of the UN is in an underground room looking at video screens of panicked prime ministers and presidents, says the world is dying and we need a solution, picks up the phone and, you guessed it, calls for their top accountant.

Business and investors do not yet factor into their accounts the cost of the natural capital they use such as water, air and soil. They are slow to adjust their accounts to factor in the impact of climate change. It was better accounting – Paris aligned accounting – that led to BP writing off $17.5bn of its assets when it used a more accurate depreciation timeframe given the rapid pace of energy transition taking place.

Our pension funds are fuelling the climate and nature emergency we are now experiencing, but they are a vital part of the solution. That is one of the reasons why we started Make My Money Matter. Alongside our co-founders, Richard Curtis and Jo Corlett, we have spent the last year starting the conversation – among industry, business and the public – about the role of finance in shaping our world. There is nearly £3trn in UK pensions, invested by ordinary people to save for their retirement. Yet the truth is most of them don’t know that their money is invested or what this money is invested in.

When we’re seeing an explosion of activism on key issues – from the climate crisis to Black Lives Matter – we cannot (and should not) ignore the power that our financial system, and our retirement savings, have to build a better world. We want the finance industry to do three key things.

First, we want pension funds to engage meaningfully with their members, telling savers where their money goes and providing them with a say over how it is invested.

Second, financial institutions must commit to Net Zero now. The Task Force on Climate-Related Financial Disclosures is a good step forward, but we know if we have any chance of tackling the climate crisis, disclosure won’t be enough. Every pension should be on track to halve emissions by 2030 and reach Net Zero by 2050.

Finally, we want to transform the way financial institutions think about their impact. It is not good enough for us to think about “doing no harm”. We need to start doing good with our money. This means investing in our local communities and in companies that are building a better world. This is an imperative if we want savers to have a world worth retiring into.

This agenda doesn’t have to mean sacrificing returns. Good businesses – ones that treat their workers and the natural environment well – look set to grow as consumers make more sustainable choices. 

And, by investing in the future through sustainable transport, green energy and affordable housing, we will be able to solve our most pressing problems while giving people security in their retirement.  

Accounting is at the forefront of making our vision of the future a reality. Five global standards organisations – CDP, the Climate Disclosure Standards Board, the Global Reporting Initiative, the International Integrated Reporting Council, and the Sustainability Accounting Standards Board – have come together to create a shared vision of what we need for truly integrated corporate sustainability reporting. The IFRS is undertaking a public consultation to assess the appetite and feasibility of a set of global sustainability standards.

We hope this work will lead to every business in the world accounting for its impact in its annual report, giving consumers and investors the information they need to make informed choices based on a company’s impact on people and planet, and the transparency to hold companies to account on their commitments – on climate, workers’ rights, diversity and governance.

Accountants are saving the world, and they’re starting now.