Agenda item

The Head of Pensions Governance and Investments presented a report to advise Members of the Teesside Pension Board (the Board) of an additional risk that had been added to the Pension Fund Risk Register and also to provide Members with an opportunity to review the Risk Register

The Pension Fund’s Risk Register was an attempt to document the various investment, funding, governance, administration, demographic, economic and other risks there were that could prevent or make it harder for the Fund to achieve its long term objectives.  The Pension Fund Committee was presented with a copy of the Risk Register at its March meeting each year as part of the Pension Fund’s Business Plan and the Board reviewed this each year as part of its April meeting.

When the Fund’s Funding Strategy Statement was updated in June this year, an additional risk was added in relation to climate change and the impact that could have on the Fund’s assets and liabilities.  This risk had now been formally included within the Fund’s Risk Register, an updated copy of which was attached at Appendix A to the submitted report.

Climate change had the potential to have wide-ranging impacts on all aspects of human society, including economies, trade, the value of companies and all classes of financial assets.  As such, it was sensible to include it as a separate stand-alone risk instead of allowing it to be covered by existing risks like “Global Financial Instability” or “Investment Class Failure”.

The full description of the climate change risk was as follows:

“The systemic risk posed by climate change and the policies implemented to tackle them will fundamentally change economic, political and social systems and the global financial system.  They will impact every asset class, sector, industry and market in varying ways and at different times, creating both risks and opportunities to investors.”

The Fund's policy in relation to how it took climate change into account in relation to its investments was set out in its Investment Strategy Statement and Responsible Investment Policy.  In relation to the funding implications, the administering authority kept the effect of climate change on future returns and demographic experience, for example longevity, under review and would commission modelling or advice from the Fund's Actuary on the potential effect on funding as required.

Likely sources and risk triggers were: Global climate change, the financial impact of both the change, and the policies implemented to tackle the change.

Potential impacts and consequences of this risk were: Significant changes to valuations of assets and asset classes. Potential for some assets owned by companies to become effectively worthless ‘stranded assets’, significantly impacting company valuations. Opportunities would also arise, for example in respect of sectors seen as positively contributing to the transition to a low carbon economy.

The Risk Register would continue to be presented to the Committee and Board at least on an annual basis.  In relation to climate change risk, the Fund will continue to work with its advisers and investment managers (including Border to Coast) in order to better understand its exposure to this risk, how this could be mitigated and how to take advantage of any opportunities that might arise as global markets increasingly took account of this risk.

AGREED that the information provided was received and noted.