A United Nations agreement seeking to cut greenhouse gas (GHG) emissions after 2013 might cause the trading of global emissions in the next decade. However, high emitters will face rising costs under national emissions trading schemes enforced internationally. It is said that these will change industry cost structures and competitive dynamics. Businesses that are carbon-intensive will lose out to more carbon-efficient competitors.

Carbon prices seek to help create clearer signals for informed investment decisions. Embedded carbon in equity investments makes carbon efficiency relevant to pension funds. Those invested in companies that are far more carbon-intensive than their sector peers could face the greatest carbon risks.

Measuring carbon impacts enables investors to factor carbon performance into decision-making. Asset owners use carbon footprints to assess potential carbon risk to the value of investments, track the performance of fund managers in managing carbon risks, compare strategies and asset managers on carbon exposure, as well as demonstrate commitment to monitoring environmental impacts.

Some fund managers engage with companies to address GHG emissions on behalf of pension funds. For example, Henderson Global Investors has written to BP and Shell about their exploitation of the Canadian tar sands and their ability to manage related environmental risks, including greenhouse gas emissions.

Pension funds can also collaborate on climate-related issues, share resources and demonstrate their commitment to responsible investment. To ensure pension funds are positioned to withstand carbon risks, trustees can provide frameworks and incentives for fund managers to integrate climate change criteria into investment decision-making.