Your bond investments and climate change

ClientEarth advises a UK pension scheme's trustees to cease providing bond capital to energy companies unless they have credible net-zero transition plans and enforceable bond covenants. The letter asserts that climate change represents a material financial risk—including physical, transition, and litigation risks—that trustees must manage to meet their legal fiduciary duties and protect beneficiaries' interests.

• Trustees of the pension scheme may be breaching their legal fiduciary duties if they continue to invest in energy sector bonds without requiring credible net-zero transition plans and enforceable covenants, as climate change is a material financial risk that must be considered under the 'prudent person test'.
• Physical climate risks are currently underestimated by pension scheme scenario models, potentially leading to a 'wealth-damaging correction' and rating volatility for hydrocarbon-dependent bond issuers.
• Transition risks, specifically stranded asset risk, could lead to total value losses of up to $20 trillion across upstream energy, electricity generation, industry, and buildings sectors.
• Investment in fossil fuel expansion exposes the scheme to increasing reputational and litigation risks, with climate litigation filings potentially reducing firm value by an average of -0.41%.
• ClientEarth proposes 'Investment Conditions' for energy sector bonds, requiring companies to have transition plans aligned with IPCC and IEA 1.5°C pathways and for bond documentation to include covenants that enforce these plans.
• Standard 'green' or sustainability-linked bonds often lack enforceability; therefore, effective bond covenants should include financial penalties, 'put' events for acceleration/redemption, or meaningful margin ratchets.

APA

ClientEarth (2023). Your bond investments and climate change. https://www.clientearth.org/media/tp0eq3fz/clientearth-bonds-letter.pdf

Chicago

ClientEarth. Your bond investments and climate change. 2023. https://www.clientearth.org/media/tp0eq3fz/clientearth-bonds-letter.pdf.

Wikipedia

{{cite press release |author=ClientEarth |title=Your bond investments and climate change |date=6 December 2023 |url=https://www.clientearth.org/media/tp0eq3fz/clientearth-bonds-letter.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@misc{clientearth2023your, author = {{ClientEarth}}, title = {{Your bond investments and climate change}}, publisher = {ClientEarth}, year = {2023}, month = dec, url = {https://www.clientearth.org/media/tp0eq3fz/clientearth-bonds-letter.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }