Considering climate risk – some pointers for trustees

Richard Butcher discusses the “must do’s” versus the “can do’s” when it comes to climate change and investments.

I had a discussion with a trustee board this week on climate change. Nothing unusual about that, except that after starting at investment we wandered on to other areas of our operation – including the trustees’ carbon footprint. It ended up with me (as Chair) setting out some ground rules, which I thought I’d share.

Firstly, be clear on the “must do’s” versus the “can do’s”. Considering the climate change risks in our investments is a must do, while considering catching a train as opposed to flying to trustee meetings is a can do. These two examples are deliberately stark. In reality, many of our choices will be more subtle. You need to be clear in which camp each decision sits. 

There is a now a general consensus that climate change is happening – but there are still sceptics. In part this is because the data isn’t crystal clear and/or because there is contradictory data. This is the nature of science. Nothing is fact, it is merely uncontested opinion. As we act (particularly where we have a must do) we must ensure we have good evidence. I make this point because on this matter there is hearsay, rumour, conspiracy, accepted wisdom, and opinion. Act on reputable, reliable sources.

Don’t fall into the trap – and we are very often led to it – that this is about binary choices: this is good and that is bad. Life is not that simple. When it comes to real life, and climate matters, it is about messy compromise. Oil companies may be horrible, but they are also some of the biggest investors in renewable energy. Electricity is the clean future, except they have yet to find a way to recycle the batteries that are essential to a smooth supply.

And on the subject of messy compromise: net-zero commitments. Firstly, lets unpack that. Net zero does not mean you do no environmental harm. What it means is (a) you’ll reduce your climate debits as far as you can/can be bothered to and (b) you’ll offset the remaining debits with climate credits – for example, by planting trees. Secondly, lets ponder “climate credits”. Carbon offsetting is full of messy compromise – not least that there is no universal measure for it. This shouldn’t stop you from setting the ambition, but you should, when you do, be aware of its limits.

The other trap it’s easy to fall into is making moral judgements. As fiduciaries it is not our job to impose our values. We are there to identify hard economic risk and to mitigate it. It is about value not values.

Be aware of your limits – particularly where the result of your actions will impact pension scheme members. This is a reminder of the need for proportionality. If you are the trustee of a £10 million scheme, you are not going to be able to change the behaviour of the global multi-billion-pound company you are indirectly invested in through a double-intermediated fund. Decide where you can make a bang with your buck and go there.

And finally, as with any major item of work, start at the top. Don’t begin the discussion with specific actions because you’ll soon get lost in a jumble of inconsistencies and philosophical debate, and you’ll have no sense of what the priorities are. Instead ask, “what’s the objective”, work out the different ways of getting there, pick the best route for you for now, set a timeline, determine some metrics, and assess the risks to success.

Good luck.


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