Risky business

The document argues that climate change creates material financial risks that UK defined benefit (DB) pension trustees are legally required to manage. Consequently, investment consultants may face legal liability, regulatory sanctions, and reputational damage if they fail to provide advice that accounts for these risks in areas such as Statements of Investment Principles (SIP), asset allocation, and manager selection. It highlights an emerging industry standard where failure to address climate risk could be viewed as a breach of the duty of care.

• There is an emerging legal and regulatory consensus that climate risk is a financially material factor that trustees of UK defined benefit (DB) pension schemes must consider to fulfill their legal duties to act in the best interests of scheme members.
• Investment consultants may be held legally liable for negligence or breach of contract if they fail to advise trustees on climate risk, as the standard of 'reasonable skill and care' evolves to include the management of climate-related financial risks.
• Climate risk should be integrated into specific stages of the investment process, including the preparation of the Statement of Investment Principles (SIP), strategic asset allocation through forward-looking scenario analysis, and the selection and monitoring of asset managers.
• Investment consultants face potential regulatory sanctions and disciplinary action from professional bodies like the CFA Institute and the IFoA, especially as the Financial Conduct Authority (FCA) considers bringing consultants within the regulatory perimeter.
• The implementation of the EU's IORP II Directive is expected to increase the explicit requirements for pension schemes to assess emerging risks, specifically including climate change and stranded asset risk.

APA

ClientEarth (2017). Risky business. https://www.clientearth.org/media/0x4nllhp/risky-business-climate-change-and-professional-liability-risks-for-db-investment-consultants-ce-en2.pdf

Chicago

ClientEarth. Risky business. 2017. https://www.clientearth.org/media/0x4nllhp/risky-business-climate-change-and-professional-liability-risks-for-db-investment-consultants-ce-en2.pdf.

Wikipedia

{{cite report |author=ClientEarth |title=Risky business |date=November 2017 |url=https://www.clientearth.org/media/0x4nllhp/risky-business-climate-change-and-professional-liability-risks-for-db-investment-consultants-ce-en2.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{clientearth2017risky, author = {{ClientEarth}}, title = {{Risky business}}, institution = {ClientEarth}, year = {2017}, month = nov, url = {https://www.clientearth.org/media/0x4nllhp/risky-business-climate-change-and-professional-liability-risks-for-db-investment-consultants-ce-en2.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }