• Atmospheric CO2 /Parts per Million /Annual Averages /Data Source: noaa.gov

  • 1980338.91ppm

  • 1981340.11ppm

  • 1982340.86ppm

  • 1983342.53ppm

  • 1984344.07ppm

  • 1985345.54ppm

  • 1986346.97ppm

  • 1987348.68ppm

  • 1988351.16ppm

  • 1989352.78ppm

  • 1990354.05ppm

  • 1991355.39ppm

  • 1992356.1ppm

  • 1993356.83ppm

  • 1994358.33ppm

  • 1995360.18ppm

  • 1996361.93ppm

  • 1997363.04ppm

  • 1998365.7ppm

  • 1999367.8ppm

  • 2000368.97ppm

  • 2001370.57ppm

  • 2002372.59ppm

  • 2003375.14ppm

  • 2004376.96ppm

  • 2005378.97ppm

  • 2006381.13ppm

  • 2007382.9ppm

  • 2008385.01ppm

  • 2009386.5ppm

  • 2010388.76ppm

  • 2011390.63ppm

  • 2012392.65ppm

  • 2013395.39ppm

  • 2014397.34ppm

  • 2015399.65ppm

  • 2016403.09ppm

  • 2017405.22ppm

  • 2018407.62ppm

  • 2019410.07ppm

  • 2020412.44ppm

  • 2021414.72ppm

  • 2022418.56ppm

  • 2023421.08ppm

Tegs Harding
News & Views

Pensions and systemic risk: the evolution of asset owners’ net zero approach

Tegs Harding argues UK pensions schemes desperately need a broader net zero lens to assess their investment portfolios

Content Tags: Pensions  UK 

Net Zero Investor columnist Tegs Harding looks at how pension schemes deal with systemic risks, and discusses what is needed to revamp or overhaul their net zero approach.

Over the last few years, the pensions industry has become more and more focused on the impact the investments they make are having on people and the planet. Intuitively, most of us know that climate is a systemic risk.

Our economy, including all the food we eat, is reliant on our planet’s natural resources, which are in turn dependent on climate. According to the World Economic Forum $44 trillion of economic value is linked to businesses moderately or highly dependent on nature. These are complex systems that interact - you can’t separate biodiversity loss from climate change.

There is no point in taking steps to limit emissions if at the same time we are destroying natural resources like forests, the ocean and soil - the world’s natural carbon sinks. Net zero simply won’t be possible. We also know that unless we prioritise a Just Transition, protecting those natural resources is incredibly difficult.

Unfortunately, the pensions industry is not very good at measuring or responding to complex systemic risks. We like to categorise and quantify different risk types. 

We haven’t yet come up with a consistent way of capturing the interconnected nature of climate and biodiversity risks in a form that non-experts can understand and use to influence the behaviour of the companies they invest in.

At the same time new regulations focusing on disclosure mean pension schemes now need to measure and publish how their investments support the Paris Agreement climate goal of limiting global warming to 1.5 degrees Celsius. Some have gone further, setting ambitious net zero goals against this. 

As a result, targets and metrics used to assess investments tend to focus on the carbon emitted by a company, largely at the expense of other information critical to achieving net zero – such as how that company is impacting water, land use and biodiversity.

Considering the slow speed at which the industry normally moves, monitoring carbon emissions has become common practice incredibly quickly for larger, better resourced schemes. 


Whilst data on biodiversity is now available, it hasn’t made it into the typical pension schemes risk measures.

Tegs Harding

Because of the obvious link to carbon, we think about how to manage our exposure to fossil fuels through time. However, despite knowing the food we eat is responsible for around a third of total emissions, the exposure to agriculture in our portfolios isn’t typically measured.

Regulatory deadlines have forced the larger schemes to move more quicky than the rest of the industry and certainly initially what limited data was available was limited to scope 1 and 2 carbon emissions, despite this being less than half of total emissions. The behaviour of the large schemes tends to be used by advisors as case studies for the rest of the industry.

Role of managers

Asset managers, keen to help trustees with their objectives, have taken on board what the first movers requested and now provide information on carbon emissions across most publicly traded assets. Advisors then bring this data to trustees, on the basis you have to start somewhere, more people begin to monitor their progress against net zero in this way.

There is a risk that as an industry we have taken what the first movers have done and replicated it, pushing for better coverage on carbon reporting and asking managers to take steps to hit carbon targets.

We haven’t stopped to draw on expertise from outside of the industry to help us think about the bigger picture. About what these systemic risks might mean for our members and the key actions we can take to influence how companies behave.

Once set in motion carbon focussed targets can lead to both sub-optimal portfolio construction and encourage companies to act in a way that isn’t consistent with the original aim, such as ditching carbon intensive parts of their business.

By using such a narrow a lens, I believe the pensions industry is failing to fully harness the role that it could play in the transition. Through lack of information rather than intent, the industry continues to finance activity that is detrimental to achieving net zero.

This problem, of looking through the wrong lens, was brought home to me this week when we were interviewing a potential new global credit manager.

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The mandate was intended to be ‘buy and hold’ rather than one that was actively traded so the bonds that were bought on day one would be in our portfolio for the most of the next decade.

We also wouldn’t have as much opportunity to sell out of bonds in the future and won’t participate in any upside for the company. The manager, aware of our net zero ambition, had come prepared. They showed us how the carbon emissions of the model portfolio would look over time and the proportion of issuers with net zero targets.

The projection didn’t look encouraging, with neither the benchmark nor the model portfolio reaching net zero by 2050, largely because not enough issuers had committed to a net zero transformation plan. However when asked the broader question of would this mandate be financing any new activity that would move us further away from a net zero world – they had no idea.


The behaviour of the large schemes tends to be used by advisors as case studies for the rest of the industry.

Tegs Harding

This is one example and what is a useful lens will differ by asset class. This was a credit mandate where you don’t have as much opportunity for engagement as you would with an equity portfolio. You don’t get a vote against directors of companies that aren’t taking steps to address climate and biodiversity issues, and you have limited opportunity to sell those bonds in the future.

We desperately need a broader lens to assess our portfolios, to give us the information needed to make sensible decisions about what real world activities we are financing.

We now know the science is saying that limiting the increase to 1.5 degrees is no longer achievable. Unless we use a wider lens to look at our portfolios, then achieving 2 degrees will soon become aspirational as well. Listening to experts on climate from outside of the pensions industry on how we craft forward looking policies that offer positive action is key.

For me, taking the time to stop and listen to those with a different perspective was eye opening and has set me on a path to integrate Biodiversity Loss and a Just Transition into the policies of the schemes I work with. For some it may mean an evolution of their net zero policy and reframing targets set just a few years ago.

I don’t see that as admitting defeat, it’s learning from experience and finding a more effective way to go about achieving our goals.


Tegs Harding is a professional trustee with Independent Governance Group and sits on the board of a broad range of pension schemes. She has a background in investments, having worked in investment consulting, banking and insurance. Harding is an accredited Member of the Association of Professional Pension Trustees and a Fellow of the Institute of Actuaries.

As well as being a trustee, Harding is a member of a defined contribution Mastertrust and she is also a member of the Association Professional Pension Trustee committee on ESG and climate change and the Occupational Pension Scheme Council (OPSC), looking to improve stewardship standards.

Content Tags: Pensions  UK 

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