A LEADING environmental charity has said two of Scotland’s largest pension funds are facing major risks from climate change but are failing to address them.

Friends of the Earth Scotland (FoES) made the accusation in a report published today by the charity nationwide, which examines 19 large public sector pension funds.

The Lothian and Strathclyde pension funds, run by the city councils in Edinburgh and Glasgow, were found to be failing to take adequate action to protect their £27.1 billion investments from climate risks.

They claim to be addressing climate risk through a process of “shareholder engagement” with fossil-fuel companies, which FoES says “involves asking fossil fuel producers such as BP and Shell to become more climate-friendly – often in direct contradiction to these firms’ business plans”.

The report found that both had raised climate change issues with the companies they invest in, but had set no clear objectives for this effort.

It said neither had provided any evidence that shareholder engagement could insulate their funds from climate risks, and neither had policies in place to reduce their investments in fossil fuels.

The Strathclyde fund has an estimated £803 million invested in fossil fuel companies, according to FoES, and the Lothian fund £153m.

A recent report from the UN Intergovernmental Panel on Climate Change (IPCC) set out the need for wholesale transformation of our energy, transport and agricultural systems away from fossil fuel firms.

Ric Lander, divestment campaigner with FoES, said: “This timely report shows that Lothian and Strathclyde pension funds are not doing enough to protect pension holders from the risks associated with climate change.

“Nor are they being realistic about the wholesale changes needed to transition to a zero-carbon economy that meets the challenges climate change brings. Those running our pension funds are still banking on big oil, fracking and coal to fund our pensions in the decades to come.

“This strategy is just not credible. Foresighted investors are divesting from fossil fuels and investing in companies who can be part of the new, zero-carbon economy. Politely asking oil companies to sell less oil simply isn’t a credible response to the urgent challenge of climate change.”

A spokesman for Strathclyde Pension Fund responded and said: “Any pension fund should welcome engaged and committed members and we agree with campaigners on the threat posed by climate change now and in the future.

“However, the fund does not agree that an exclusive focus on fossil fuels is a reliable measure of an investor’s carbon exposure – or a particularly helpful one in building a low carbon economy. For example, some of the greatest investment in renewable energy worldwide is connected to firms also working in fossil fuels; while other extremely carbon intensive industries are inexplicably ignored."

Clare Scott, chief executive of the Lothian Pension Fund, said it had acted responsibly in its investments: “In June this year we did a carbon footprint exercise on our fund and it was almost identical to our benchmark. But we will disinvest from companies where we think risk is too high.”

A report for the Edinburgh City Council added: “The fund also engages with companies to demand high standards of corporate governance and to protect and grow shareholder value.  "It believes that divestment of ‘fossil fuels’ as a policy will have little or no impact on company operations.”

Whilst the report said Scots funds were falling behind, it added those in England, including Merseyside, Lancashire and London, were reducing their exposure to risky companies and setting goals for engaging with firms they invest in.