EU Pension Funds Now Required to Assess “Climate Risk”

money_sucking_vortex

Guest essay by Eric Worrall

The cash strapped European Union has usurped greater control over three trillion Euros of private pension funds, by issuing a directive which requires EU based funds to consider “Climate Risk” as part of the basis of their investment decisions.

EU requires pension funds to assess climate change risks

EU pension funds will have to include environmental risks in their investment strategies, under a law passed on Thursday, that ecologists hope will encourage money to flow out of fossil fuels and into greener sectors.

A large majority in the European Parliament backed the law that requires managers of retirement funds to take into account the “environmental, social and governance risks” of their investments.

Under the new law, the potential negative effects of climate change or political factors on retirement funds will get the same level of attention as liquidity, operational or asset risks.

“This is a big success for the promotion of investments in sustainable products,” German Greens lawmaker Sven Giegold said, adding that the law “paves the way for the introduction of fossil divestment by European pension funds”.

The pensions industry holds in Europe assets for a value of about 3 trillion euros ($3.17 trillion) on behalf of around 75 million people.

Read more: http://www.reuters.com/article/us-eu-finance-climatechange-idUSKBN13J1SV

Given the disastrous track record of renewables giants like Solyndra and the giant Spanish renewables business Abengoa, I would say banks and pension fund managers have good reasons to steer clear of renewables.

Coercing banks and pension funds into tossing depositors cash into subprime green energy projects in my opinion is unlikely to improve European pension fund performance.

It is also worth noting that until Britain invokes Article 50 and leaves the European Union, the City of London is subject to this new European climate directive, as are any EU based pension funds managed by US banks.

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92 thoughts on “EU Pension Funds Now Required to Assess “Climate Risk”

  1. ..Most people just shoot themselves in the foot, but the EU just shot itself in the head…Expect more Brexit style rebellion among the masses…

    • or just opened themselves up to the worlds largest lawsuit….
      They are going to dictate how you can invest…and what in
      …when those investments don’t pay off

      • The EU “commissars” are protected from any and all prosecution both from individuals or governments to do with their work for the commission. Also their pensions are dependant on them never saying anything against the EU and are paid for by the proles who get no say in the decisions made.

        James Bull

      • I was thinking the same thing. Who in the EU can be sued when the next wave of green co.’s go belly up and their pensions only have a value of 2 Trillion. They need to stop digging their own graves! Just stop doing stupid liberal actions. JUST STOP!

    • More likely first they shot themselves in the foot……then the leg (Pain!), then the other foot (more Pain!)
      When the Globalist Delusional’s finally disband, the last shot will be to the head…..(Out of Pain!)….:-)

    • EU needs leathers that put the welfare of the people first and the politician last we will see when the cold
      hits hard and the pensioners start to die in mass as before!

    • Retards at the European Commission are determined to drive straight into the wall in front of them.

      Having said they’d “got the message” just before the Brexit vote when polls showed a large opposition but still predicted remain winning, they have now forgotten that they said they would have to have a fundamental rethink and are now just doubling down and calling for “punishment” of Britain to deter other countries and keep them in tow.

      They are doing their best to ensure that Le Pen wins next March and then the whole european project will fall apart.

  2. Who’s assessment of “climat risks”? If the pension fund managers are honest, much of the green renewables are at severe political risk, as they are dependent on subsidies and special treatmant in the market for their viability, and politics can change at the next election. (I wonder what Warrren Buffett thinks of his investment in wind in the US, given the new Trump adminstration?)

    • If the pension funds are forced to invest in “green energies” …… then that will force the EU government to continue funding the subsidies given to the “green energies”.

    • It’s just a question of communication. They have not explained themselves as well as they should have done. The plebs still have not understood. They will have to try harder to “explain”.

  3. ‘Under the new law, the potential negative effects of climate change or political factors on retirement funds will get the same level of attention as liquidity, operational or asset risks.

    “This is a big success for the promotion of investments in sustainable products,” German Greens lawmaker Sven Giegold said, adding that the law “paves the way for the introduction of fossil divestment by European pension funds”.’

    First and second paragraphs aren’t connected. First one says they have to think about what effects climate change will have on their business investments. Like, if the temps go up 2°C, how will it affect your holdings. How this would promote investments in sustainable products, whatever they are, is not clear.

    • By political factors, think Sharia law coming into force. Sharia prohibits interest. Adios to the bond funds in your pension plan.

  4. “This is a big success for the promotion of investments in sustainable products,” German Greens lawmaker Sven Giegold said, adding that the law “paves the way for the introduction of fossil divestment by European pension funds”.

    In other words, pension money will be diverted into the Greens crony money sinks.

    • Don’t think the Greens this one through. Given the political “factors” in the United States, the logical move for a EU pension fund administer seeking to minimize his clients financial risks would be to sell all holdings in the EU and transfer them to the U.S.

      Think about it from a financial strategy point of view:

      Case 1 – Climate Change has no long term impacts. The value of U.S. investments rise faster than EU investments. Client wins.

      Case 2 – Climate Change has a long term impact. The value of U.S investments rise faster then EU investment to that point and then rise even faster as the U.S. adapts. Client still wins.

  5. take into account the … governance risks

    and

    under a law passed on Thursday

    This law creates the governance risk that it warns about. This law is now dictating the terms under which investments can be made. This is a huge new liability, and with the passage of this law, and this new intrusion into the market, there is no telling what else might be in store. So now, investments must be made based on what a reckless and capricious government *might* do next. Get your money out now.

    In a larger view, is the EU headlong rush into “renewables” not wrecking the EU economy fast enough?
    “Faster, faster, more, more. This should do it!”

    • Taking the IPCC figures about the total impact of reducing carbon emissions at this time they will be able to demonstrate that it will be immeasurably small.

      This law simply obliges them to do that calculation and present it. Sounds like a good idea to me.

  6. With the developing situation in France I expect EU to declare All Pension Funds as EU property and dispense with the “climate risks” bullshit. It’s the money that is of supreme importance as the German Federal State crumbles under the weight of their errors and the “Putin Pincer” closes on Merkel and destroys her in the early months of 2017.

    Wait for the end. ;-)

  7. I am in the middle of a Masters Degree in Quantitative Finance and we cover all the areas of risk.
    If a bank needs to know about it then it researches and quantifies all risk.
    Climate is irrelevant and whatever tiny effects it might have are already handled in the other categories of risk.
    A bureaucrat will never be able to comprehend how irrelevant he is.

    • Giving EU bureaucrats more say over what constitutes investment risk probably substantially increases the legislative risk profile of European investments ;-).

      Lew, please consider submitting a story to Anthony about how you think climate issues and the government response to those issues are impacting the global risk landscape – I’d love to read a detailed analysis by someone of your skills.

    • Big government pension funds are almost irresistible to politicians. Big company pension funds are almost irresistible to company executives.

    • “A bureaucrat will never be able to comprehend how irrelevant he is.”

      Everybody likes to believe they are relevant and saving the world from disaster clearly fits this bill.

      I am looking forward to the world heating up when Trump becomes president because if it doesn’t, then Obama’s legacy will be revealed as a very costly hoax.

      • “I am looking forward to the world heating up when Trump becomes president because if it doesn’t, then Obama’s legacy will be revealed as a very costly hoax.”

        Did you leave out “not”?

  8. The UK figured out the EU scam in time to extract themselves with minimal damage. Why they still believe they owe any….any…fealty to the EU is beyond me. Europe will in time become devoid of Democracy and trapped in the web of Socialism/Marxism (spare me your expert opinion) that even Russia had enough sense to leave.

  9. This idea that only governments can manage technological innovation a la “Apollo”-style projects is ludicrous.

    History will not be kind to Europe if it continues down this path.

  10. They’ll feelgood themselves right into another financial crisis. Who’s to say that’s not the actual intent?

    By the way, has anyone caught the 2015 Norwegian TV mini-series, “Occupied“?

    “In the near future, Norway is occupied by Russia on behalf of the European Union, due to the fact that the newly elected environmental friendly Norwegian government has stopped the all important oil- and gas-production in the North Sea.”

  11. Typical EU: totalitarian at heart, forcing investors to buy in the green scam or else.
    Brexit first… Next France etc…
    In fact Papa Schulz is leaving the EU parliament to run against Merkel… Two fingers of Soros…

  12. It would be ironic if pension manager would state ‘The production of Co2 benefits our assets therefore there is very little risk to our holdings’

    • My guess is that eventually, the risk assessment will have to be in accordance with United Nations view will be regarded acceptable by auditors. This looks more like totalitarian government in the making.

      “The Utopian attempt to realize an ideal state, using a blueprint of society as a whole, is one which demands a strong centralized rule of a few, and which is therefore likely to lead to a dictatorship.”
      ― Karl Popper, The Open Society and Its Enemies

  13. Yeah, they can consider the risks – and determine that they are negligible and go out and buy some gas stocks. No problem.

  14. WOW!
    “In order to secure your retirement and financial future you must invest in that which jeopardizes your finical future.”
    They are building a “house of cards” … all dueses.

    • If Europe destroys enough of their forests they just may get the man made climate change they were looking for.

      • Be fair, we are also trying to destroy enough of USA forests (for biomass) to get the man made climate change everyone is looking for….But sod the forests, investors ( on both sides of the pond) are making money !!

    • Over Thanksgiving dinner I was talking to the owner of an American company that specializes in the construction and demolition of wood mills, wood chipping/pelleting plants, and bio-energy plants. He’s made a very respectable living building plants in the Southeastern U.S. to meet demand for lumber, paper, wood products, and pelletized fuel. The pelletized fuel is, of course, produced mainly for export to the EU.

      In particular he builds the plants (cash up front of course) and demolishes them when they go bankrupt (again, cash up front).

      He was musing on the prospects of his latest client… a German company. He pointed out the plant had three time the capacity that the surrounding land could support. The Germans were oblivious. So, he was building the plant in a manner likely maximize his profits when he’ll be asked to demolish it – the Germans, he noted, like to build “sturdy” structures. Bankruptcy, he estimated, would occur about three years after the plant was constructed.

      American capitalism in action… got to love it.

  15. Risk is a two-way street with probabilities (either way) weighted by observation, trends, science, analysis and yes bias. So those with a longer term view of the globe may take a more balanced view of cooling/warming risk. Unfortunately, but realistically, this current argument has more to do with political risk than scientific risk in the time frames most of us are capable of understanding, being a lifetime or less. Practically, money managers and other fiduciaries, regardless of their scientific understanding, will be forced to toe the party line while hedging their bets against the long term advance of climate reality: adaptation, which is humankind’s best, proven response to change of every kind.

    We have all been suckered into the small-beer argument of CO2, which is a bit player at best. We have accepted the false premise, which is the first mistake. How do we now focus our fellow citizens and political representatives onto the issues which really count? Continue focusing on science, economics, education and self-interest, though in a modern-world marketing way combined with an old world bluntness. We must call out the liars, especially those of us without mortgages and jobs. The truth will out, particularly when economic self-interest becomes apparent, as in Germany, UK, South Australia, Ontario, etc. Painful and frustrating in the short term, as we are all pariahs at the cocktail parties, vindication is coming.

  16. Dear Lord, I think it’s about time for another one of those deluges of yours. Please limit this one to the Western Eurasian peninsula and North America’s Eastern Seaboard. A medium-sized asteroid strike near the Azores should do the trick. Thanks.

  17. So, investing in renewable crap is risky…

    Subsidies could be withdrawn by any elected, rationally-minded government.

    Yes investors should certainly take that into account.

  18. The sad part of all of this is that, even if the modern witch doctors are exposed as lying and redirecting valuable resources toward an “issue” that either has no impact, or was a complete fraud, the people who suffer from the loss of wealth created will probably vote for the same people—or their anointed replacements.

    We humans, as a whole, never seem to learn. During the Neanderthal period—and beyond—people were told that the evil deeds they did caused the bad weather, the earthquakes, disease, or whatever was a convenient excuse to wield power over others. And we’re still doing it. Today it’s cloaked in the terminology of science, even if not its essence of seeking truth.

    Whether it’s a population explosion and the imminent mass starvation we were told was coming in the late 20th century, or the ozone hole that will fry us, or DDT, even the lingering lies remain and many people still believe.

  19. “A large majority in the European Parliament backed the law that requires managers of retirement funds to take into account the “environmental, social and governance risks” of their investments.”

    Sadly, no surprise here. One in seven members of the European ‘Parliament’ are affiliated to Green parties, and the majority of the rest are equally obsessed with signalling their supposed moral superioriy over the hoi poloi. A clean Brexit cannot come soon enough.

  20. The wrong part is bolded in the Reuters para. It should be
    “Under the new law, the potential negative effects of climate change or political factors on retirement funds will get the same level of attention as liquidity, operational or asset risks.”
    They aren’t being told to invest in renewables, or whatever, to do good in the world. They are being told to consider risks to the safety of client’s funds. As surely they should.

    • You haven’t had much experience with government thinking have you? Reading between the lines… it’s obvious that they want the funds to make statements that climate change is real and dangerous… and to withdraw funds from reliable heat and power sources in order to put it into unreliables.

      • This is rather conspiratorial. The matter has a straightforward prudential aspect. For example, one of the odd aspects here is that a major backer of the Sydney Desal plant is the Ontario Teachers Pension Fund. Now they obviously have a major stake in the climate future there. I believe it is a well-run fund, and they have probably worked it out, but it could seem that they may not have judged climate prospects properly. It seems to be proper for an oversight body to mandate reporting on consideration of climate risk for such ventures.

      • …but it could seem that they may not have judged climate prospects properly.
        ===========

        It could be that they were soaking in global warming propaganda at the time of the decision.

        ====
        DROUGHT will become a redundant term as Australia plans for a permanently drier future, according to the nation’s urban water industries chief. […] The urban water industry has decided the inflows of the past will never return,” Water Services Association of Australia executive director Ross Young said. “We are trying to avoid the term ‘drought’ and saying this is the new reality.”
        (The Age, 2007)
        ====
        “Drought is too comfortable a word,” said John Williams, the New South Wales state Commissioner for Natural Resources. “Drought connotes a return to normal. We need to be adjusting.”
        (Cosmos, 2007)
        ====
        “The pattern that we’re seeing now in the weather in Australia is very much the pattern was predicted by computer models as much as a decade ago.We will have to get by with less water. The CSIRO’s telling us that. We’re seeing it now, in the evidence before our eyes in our rivers and creeks, and of course the computer models in the global models have been predicting just this now for some years. I think all evidence says that this is our new climate and we have to get by with less water than we’ve ever had before.
        (Tim Flannery, 2007)
        ====

        I don’t want to be enslaved to foreign investors for my water supply, btw,

    • Nick: it is clear that green MEP’s think otherwise – ““This is a big success for the promotion of investments in sustainable products,” German Greens lawmaker Sven Giegold said, adding that the law “paves the way for the introduction of fossil divestment by European pension funds”.

  21. Solyndra and Abengoa?

    So no failures or bankruptcies in other areas of the energy market (coal mining?) – really that’s a cherry pick in a very successful market (which the US is about to leave or fall behind in).

    All the world’s insurance companies take account of climate risk – do you suppose that’s some sort of UN influence or a hard headed assessment of the actual state of things?

  22. The EU and its bloated undemocratic, unaccountable, bureaucracy is a major threat to all our investments. If left as is the Brussels/Strasbourg cabal will eventually self-destruct resulting the mother of a global financial crisis. Better a controlled stage by stage dissolution, good start made by the UK.

  23. Like all despotic regimes the EU are mentally unbalanced, this is why GB are standing at the exit gate, shame that the leftists are not on the side of democracy and Brexit.

  24. and certainly in the UK now, its mandatory that you and your employer shovel money into a pension fund.
    For what?
    Your retirement of course, idiot.
    But in the meantime, where does the pension fund manager put this money if not into Government bonds/loans/gilt-edged-securities.
    And how do they work? By letting inflation devalue the money so gov’mnt only pays back a fraction of what it borrowed when the bonds mature 10/15/20 years later.
    What could possibly go wrong?
    Meanwhile it is mandatory to buy insurance on many things.
    In steps Insurance Premium Tax. started at a very low level a few years ago, went from 9.5% last year to 10% this and will be 12% next year.
    In the longer term, where will this end…………….

  25. Risk assessment for pension funds is not a new requirement. More than twenty years ago, as a trustee of a defined benefit scheme, I always insisted in placing possible Government action as the most serious risk to the the solvency of the fund.

    Starting with Kenneth Clark, successive Chancellors of the Exchequer have done more damage to UK pension funds than even the worst outcomes predicted by CAGW model forecasts could possibly do in the next 100 years.

  26. Those political jerks …
    I know of a law that requires every new law to prove it will be beneficial. So … in the process of lawmaking, they just added a piece a paperwork that just say that : “i hereby swear than my new piece of BS is so good and cost so little, i wonder how we could live so long without it”. The paperwork is done by some newbie clerk, smart enough to copy-paste some officials’ BS on a couple of pages (no more). And never read by anyone (is it there ? checked !).

    So
    I guess “the potential negative effects of climate change or political factors on retirement funds will get the same level of attention as liquidity, operational or asset risks.” : for sure, “potential negative effects of climate change” will benefit from the same kind of paperwork.
    Great, isn’t it ?

  27. They already do assess climate risks. They assess all risks. This directive will change nothing if implemented honestly. And what will the European Parliament do if the pension managers conclude there are no risk-management steps to be taken?

    Oh, right. It won’t be implemented honestly.

  28. Please can I ask Being And Time to refrain from wishing for an asteroid strike on the Azores – did he or she have a bad holiday experience? – as the local population aren’t to blame for the EU. These things have a disturbing way of turning into strange coincidences and anyway the resulting tidal waves etc might be somewhat more unpredictable than you think.

    As the EU recently published a report telling us that 42 million EU citizens are now living in fuel poverty and having to choose between heating or eating and no one in our useless broadcast media in the U.K. even reports it – certainly not the BBC, I doubt that there will be much fuss about pension funds being embezzled by the limitless greed of the green lobbies fellow travellers.

    To all our American friends, please please encourage Donald Trump to take an axe to all this nonsense, my greatest fear is that he’ll be got at.

  29. Moderately Cross of East Anglia commented: “..To all our American friends, please please encourage Donald Trump to take an axe to all this nonsense, my greatest fear is that he’ll be got at…”

    He understands the economic implications of the AGW scam very well and puts prosperity above dodgy science. He’s already stated he will “make America energy independent through increased fossil fuel production nationally” and has called AGW a “hoax”. One of his first cabinet appointments was Myron Ebell
    …. “Mr. Ebell, who revels in taking on the scientific consensus on global warming, will be Mr. Trump’s lead agent in choosing personnel and setting the direction of the federal agencies that address climate change and environmental policy more broadly.” Look up his name. He was voted “as one of seven “climate criminals” wanted for “destroying our future.” And remember….Trump has no political baggage and his agenda is his own :-) Time will tell but he’s stubborn, arrogant, a change agent, and doesn’t shy away from a good fight.

  30. The reality is that, thanks to previous regulatory overkill,the pension funds in Europe are almost entirely invested in bonds, so the idea of the green activists of corrupting the legal system to achieve their aims of killing off energy companies by starving them of investment capital was always doomed to failure. All they really achieve is to deprive savers of access to stable high dividends from the likes of Royal Dutch Shell. The real risk is that the green blob issues billions in ‘green bonds’ to fund otherwise uneconomic projects and the drones that sit atop the pension schemes misallocate capital on a grand scale. The original plan of Goldman Sachs et al was to create a cap and trade system to make millions out of carbon credits, but that hasn’t worked, so this looks like the new plan.

    On an optimistic note, this might (possibly) blow up in their faces. Forcing investment managers to publicly assess climate change risk could actually let some sunlight into dark corners. Up until now, the very smart minds in the Fund management industry (and there are many) have tended to let the Climate change circus chatter away in a self righteous froth on the basis that they were a mild nuisance at best. This could change things. Due diligence requires proper research, not simply parroting the accepted wisdom. A good fund manager is not swayed by so called experts and recognises that if he was running a fund that had failed to deliver the performance predicted by his modelling for 18 years that serious questions would be asked. It wouldn’t matter how many Nobel prize winners he had doing his backtesting, people would want their money back. Moreover if the clients discovered that he had not only fixed his back test performance period to start at the absolute low but also that he had ‘smoothed’ some of the track record he would be looking at prison.

    Thus if for example a UK pension fund manager writes in his report that based on the IPCCs own estimates, decarbonising the UK economy will have zero effect on predicted temperatures (which is a true statement) and that therefore the activity of UK based carbon producers can not be deemed to be harmful it will raise an awkward problem. The manager has stated a fact that up until now has been swept under the table (there are multiple other such facts on this site and others) and unlike other debates it can’t be shut down by the NGOs. He could state that the risk is that irresponsible government beholden to green lobbyists represented a threat to the cash flows of certain companies (which is also true) which would set further cats running amongst the proverbial pigeons.

    Bottom line is that to date, the money has all been made by the few powerful people on the side of AGW at the expense of millions of small consumers. If they present a large threat to a large and sophisticated counter party then we might just have a fair fight on our hands – and many more readers of WUWT!

  31. I think the “governance risks” are the main point.
    “A large majority in the European Parliament backed the law that requires managers of retirement funds to take into account the “environmental, social and governance risks”

    They better invest in values not very influenced by government, and green investments are very dependent on government.
    But so far they only have to concider it, and thats ok as long as they are free to come to their own conclusions.
    You could also turn it around, and ask the governments to concider how to make green energy a good investment, or why it is not so.

  32. Workers in Europe want to be taken care of by the state and don’t mind having their investment decisions handled by others who know best. Look at the governments they elect. They will get the pension investment strategies and results they deserve.

  33. The California Employees Pension fund managed to get an amazing 0.69% yield last year from their demands that the fund can only invest in green companies. Pensioners may soon be paid in karma enhanced organic tofu and not actual money.

  34. This is great news for EU pension funds. We know that all human life will cease within the next ten years due to locked-in climate change, because Guy McPherson of the University of Arizona tells us so. We know this is true because Professor McPherson is a scientist. So pension funds which take into account climate change can prove that they will have no retirement liabilities beyond 2026, which should put them all in a healthy surplus.

  35. – Climate Risk: zero
    – Risk of Gaia worshiping Marxists crushing the spiritual, social, economic, national security and health heritage of Western Civilization: nearly 100%

  36. I am reminded of the City of Los Angeles, which spent many millions over many years on ‘feasibility studies’ of various regional mass rapid transit system options (bus, train, streetcar, etc.) until they realized that if they had simply picked a system at the beginning and run with it, they would have had a working system with lots of money for upgrades.

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