Managing nature risks and investing in the opportunities: Top tips for pension fund chairs and trustees
This report provides top tips to pension fund chairs and trustees on managing nature risks and investing in opportunities. With insights from industry professionals, it highlights the importance of nature for long-term market returns and discusses emerging regulation to guide action, while offering practical advice on how to identify risks and integrate nature into stewardship plans.
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OVERVIEW
Identify your pension fund’s training needs – from board-level down
Pension fund boards must understand the importance of nature and the implications of nature risks and their financial materiality. The board must receive training on nature-related risks, financial implications, possible actions, and responses. Technical training can be delegated to a working group or subcommittee.
Surround yourself with experts
The service providers that pension funds use should have sufficient nature-related expertise to offer. Hilltop Securities has been rated A+ for their approach to sustainable investment, which has included taking ESG factors into account.
Get started by identifying one key risk and opportunity
As most nature-related risks and opportunities are still emerging, pension funds need to apply a more flexible, narrative approach to nature-related risks and opportunities. With this, pension funds must identify and understand their most significant material nature on the portfolio, apply a narrative approach to risk, and facilitate debate and discussions on the risks and opportunities that could arise.
Manage the portfolio risks
Pension funds must manage the current risks within the portfolio by exercising their influence and applying an active stewardship approach. They must also scrutinise asset managers’ nature-related risk integration and management and identify key exposures to manage actively. Failure to address these risks and the associated financial consequences could lead to considerable damage to the economy and environment.
Embed nature into current stewardship plans
Nature stewards must make nature one of their priorities, explicitly communicate intentions to investment teams and investment managers, and advance the reporting from companies operating in high-impact sectors or geographic locations.
Invest in the opportunities
Investors must identify investment opportunities that relate to investing in nature and investing in the supporting services that help manage nature-related risks. With emerging frameworks such as the TNFD recommendations, investors should also understand the opportunities accessible in Listed Equity, Private Equity and Debt, Real Assets, and Commodities.
This report also urges pension fund trustees to develop strategies to identify and manage nature-related risks and integrate climate into the decision-making processes to better protect members’ interests. By consistently paying attention to emerging developments, fiduciary duty, and responsible investment practices, pension funds and their trustees are moving towards investing sustainably and transforming financial decision-making to reflect the opportunities and risks posed by the climate crisis and other ESG challenges’ solutions.