The big macro changes that have taken place over the last year require a rethink and action from investment professionals.
If we think about how investment risk changed in 2020, we can’t of course ignore the impact of COVID-19, but another risk has simultaneously been brought more into the spotlight – climate risk. That is, the physical, transition, legal and reputation risks associated with climate change and the growing recognition of the need to move to a lower carbon economy.
Climate risk is increasingly material to pension funds, both through asset holdings and liabilities, but also in relation to a sponsor’s covenant and the attitudes of members who may have to live with the physical impacts of climate change. Disclosure requirements are also multiplying.