Fiduciary duty for a pension trustee is about protecting the financial interests of fund members in the long term. But pension funds and other institutional investors spend more time looking at the trees rather than at the forest – they invest effort in asset management, yet virtually nothing in identifying and taking steps to manage systemic risks. This is despite the fact that a large proportion of their returns and risks are driven by systemic changes - value destruction in recent years is clear evidence of that.
The biggest systemic risk is climate change, where governments have to take decisive action within a very short time to have a reasonable chance of avoiding catastrophic climate change.
Should pension funds be sitting around and wait for governments to act? Or should they do as major corporations have done for years: wage education campaigns aimed at decision-makers to get them to take necessary steps?
Even with constrained budgets, there is much room to act through collaboration with other pension funds. There have been a few tentative efforts, such as joint letters to government, or commissioning of reports. Yet these are only baby steps, utilising tiny budgets – and with minimal impact. In the face of systemic risk, fiduciary duty demands more than just looking at the trees.
This is an abbreviated version of an opinion piece by Sean Kidney published by the Network for Sustainable Financial Markets.
