Climate change transparency by ethically responsible European pension funds: contractual issues and agency challenges

European pension funds play an increasingly significant societal-wide stewardship role
both by providing retirement income for ageing populations and in securing public
policy targets related to the green transition through engaging in net zero investment
policies and climate friendly risk management strategies. In contrast with legitimacy
and stewardship explanations of socio-environmental accountability issues,
stewardship theory implies that organisational managers instead care about societal
wide issues concerning environmental accountability. This paper argues that European
pension funds, as increasingly influential institutional investors, face additional
incentives to adopt a more nuanced “trusteeship” accountability to their beneficiaries
by going beyond making generic ESG commitments to provide more specific public
climate change transparency. We examine the degree of alignment with the Task
Force for Climate-Related Financial Disclosure (TCFD) recommendations in publicly
available climate reports of a sample of fifty globally large European pension fund
organisations that dominate the investment industries in four European countries which
mandate retirement savings via pension funds. We predict and find that the degree of
public climate change transparency is related to the extent of delegation of investment
management and monitoring to outside professional organisations and the governance
structure, the separation of ownership and control of non-occupational based pension
funds. Our conclusions are in line with a trustee theory which explains how pension
funds face special contractual, and agency features which influence public
transparency about how they deal with climate change.