This report considers the relationship that the change in climate has with the pension fund. The pension fund is one of the largest consumer products, and there has been a concern on how to protect it from any possible material or financial risk (Jill 324). So many studies have been carried out to find out the effect that changes in climate have on the pension fund. This report tries to find out whether climate change is indeed a material threat to the pension fund.
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In the recent past, pension fund trustees have been finding ways to incorporate their investment strategy on the environment. This has prompted by the potential risk that pension fund face from the policy changes and the possible physical effect of climate change. Corporate behaviour has a direct effect on climate change; most of the corporate has contributed a lot towards environmental degradation that has led to a drastic change in the climate.
Some business consumes many resources without any sustainability measures that result in depletion of crucial natural resources such as plantations (Jill 328). The effect of the climate has shown the potential risk to the institutional investment funds as climate change has seen a number of companies run into losses. Pension fund forms the largest part of the shares held by UK listed companies. Protection of pension fund from material risk such as climate change will lead to a maximized social welfare (Jill 367).
Pension fund trustees have the power to manipulate the activities of the corporation to ensure that these activities are environmentally friendly. This will ensure that the level of pollution by the operations of the firm is reduced, leading to a positive change in the climate. However, studies have shown that pension fund trustees do not think that pension fund can be used to influence the environment. The trustees do not bother knowing the activities of their fund manager.
They are not concerned with how the activities may influence climatic change. This implies that when the managers choose to ignore their effect on the environment, which is very important to the performance of the company, the trustee’s funds will be at risk. The state of the climate relates so much to the financial return to the business, when there is poor climatic change, the financial position of the business tend to be lower. When this goes to the extreme, it may lead to the closure of some corporations, which will lead to a loss of pension fund (Jill 328). This makes it a real concern as it shows how climate change is a material risk to the pension fund.
The other way in which climate change seems to be a material risk to the pension fund is the increased concern by corporations to invest in climate change projects. Most companies ensure that they participate in corporate social responsibility due to the policies that are put to help protect the environment. This implies that corporations may use the pension fund in social responsibility activities which may lead to a reduction in the pension fund, or lead to a loss, in case the investment boomerangs (Jill 386).
The activities by corporations have to lead to a remarkable level of global warming, which has lead to crisis rising from the changes in climate. Funds pension is one area that is at risk from these changes in climate change (Jill 340). As the most influential group, pension fund trustees need to engage companies to find ways in which climate change can be handled in such a way that pension fund is not affected.
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Jill, Solomon. Corporate Governance and Accountability. New York: John Wiley & Sons, 2010. Print.