States urged to ensure that pension fund investments are rights-respecting and climate-sensitive

Climate change poses an ‘existential threat’ to humanity, including threats to livelihoods, food security, health, stability and to life, warned UN Secretary General, António Guterres, in a recent speech. As we have seen from the recent report of the Intergovernmental Panel on Climate Change on global warming of 1.5 C, those impacts and threats are now of such a scale, severity and prevalence, that it will be impossible to protect and realise human rights in the remainder of the 21th century, without urgently addressing climate change. A number of human rights treaty bodies (responsible for monitoring the implementation of the human rights treaties) (HRTBs) in their recent recommendations to States, have confirmed that States have human rights obligations to address climate change.

Recently the HRTBs have made it clear that these obligations extend to the crucial commitment in the Paris Agreement to ‘Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development’ (Art 2.1(c)). A rapid transformation to a low-carbon economy will require high levels of investments in the next decades to shift away from fossil fuels and towards climate-friendly activities.

According to OECD data, pension assets in the OECD countries reached a total of USD 43.4 trillion in 2017, of which USD 28.5 trillion corresponds to pension funds. Given the very significant value of assets in pension funds (public and private), they have a fundamental role to play in fighting climate change and protecting against rights violations, by steering investments away from carbon intensive activities and investing their assets in solutions such as renewable energy.

Pension funds have legal obligations related to their fiduciary duties, to consider long and medium-term risks, such as those related to climate change that could have adverse effects on their investments. Such risks include physical impacts of climate change on pension fund assets and investments, but also the increasingly evident risk of stranded assets and the associated legal risks of failing to address the climate-related risks.

Many pension funds are already responding to those risks. The Norway Government Pension Fund Global (GPFG), who manage £770 billion of Norway’s assets, divested from coal investments in 2015 and decided in 2019 to divest from oil and gas exploration investments. Similarly, as part of a broader movement, the UK Parliament Pension Fund, the UK’s University Pension Fund, and other public pension funds, are divesting from fossil fuels and investing in clean energy technologies.

However, the role of States is also pivotal in influencing pension fund investments to respect and protect rights from the negative impacts of climate change. Through regulation and policy-making, States can oblige, incentivise and model human rights respecting, climate-sensitive action by financial actors, including pension funds.

Some States are making progress. In 2015 France became the first State to introduce mandatory climate change-related reporting for institutional investors and the EU recently revised the requirements for pension schemes, mandating for the first time that they must evaluate and disclose risks such as climate change and resource scarcity. Nevertheless, a lot more needs to be done, since one recent report found that ‘Over 60% of the world’s largest public pension funds have little or no strategy on climate change’.

In this respect, the HRTBs have an important role to play. A number of treaty bodies have made recommendations to States regarding the human rights impacts of pension fund investments. For example, the Committee on Economic, Social and Cultural Rights recommended that Sweden regulate and oversee investments made in and outside the country, by pension funds, in order to prevent negative impacts from such investments on the enjoyment of economic, social and cultural rights by local populations (COB Sweden 2016).

The same Committee, in 2013 raised concerns with Norway (COB Norway 2013) that ‘the various steps taken by the State party in the context of the social responsibility of the Government Pension Fund Global have not included the institutionalization of systematic human rights impact assessments of its investments.’

Recognising the critical role of financial flows in arresting climate change, recently two Committees have highlighted State human rights obligations with respect to pension funds and climate change. The Committee on the Rights of the Child asked Luxembourg to provide information about ‘policies implemented by the State party to ensure that private and publicly owned financial institutions, including the Luxembourg Pension Fund, take into consideration the implications for climate change of their investments and the resulting harmful impact on children’ (LOIs Luxembourg 2019).

Further, the Committee on the Elimination of Discrimination Against Women, in preparation for its review of Sweden’s performance on women’s rights, asked Sweden to provide information on:

‘the oversight mechanisms in place to regulate the investments made abroad by enterprises domiciled under the State party’s jurisdiction, including the Swedish National Pension Funds, in order to prevent the negative impact of such investments on women’s and girls’ rights.’

And in the context of climate change:

‘whether a gender perspective has been incorporated into current financial and fiscal policies and bank regulations, including regulations for government-backed institutions, aimed at reducing further the carbon footprint of the State party.’

These recent statements demonstrate that the HRTBs are aware of the potential for pension fund investments to impact human rights, both positively and negatively, through their action or inaction on climate change. The HRTBs have highlighted on many occasions that States’ human rights obligations require them to take active measures to mitigate climate change. These more recent recommendations recognise that one significant step that States should take in this regard, is ensuring, through regulation, oversight and leadership, that pension funds’ investments are rights-respecting and climate sensitive.

By Vicente Silva (GI-ESCR intern) and Lucy McKernan (GI-ESCR Geneva Representative)