Pension providers are failing to use a critical financial lever in their engagement with fossil fuel companies and are opening the door to legal risk, environmental lawyers warn.

ClientEarth has written to the UK’s 12 largest pension funds in the UK to say that, despite some meaningful shareholder engagement, funds have yet to focus on their bond investments, which are a much bigger yet lesser-known source of fossil fuel financing.

Existing legal duties require pension schemes to protect their beneficiaries from financial risk, with climate change posing an existential threat to the sector.

ClientEarth lawyer Catriona Glascott said: “Bonds are one of the main ways fossil fuel companies finance their expansion and pension funds investing in them run the risk of breaching legal duties. These funds have an enormous opportunity before them: by attaching climate terms to bonds, they can help turn the tide of the energy transition and reduce their own legal risk.”

Lawyers highlighted that many pension schemes have committed to transition to a net-zero portfolio and claim that climate change underpins their investment strategies. However, a significant amount of pensions money remains invested in fossil fuels.

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