The Role of Governance and Delegation in Climate Change Transparency by European Pension Funds

ABSTRACT Research Question/Issue We examine the key governance and delegated management factors that incentivize 50 large European pension fund organizations to align their climate reporting with the Task Force for Climate‐Related Financial Disclosures (TCFD) guidelines. We also investigate whether variations in their climate risk transparency are further influenced by external pressures. Research Findings/Insights We find that the degree of public climate change transparency is associated with a combination of (i) internal governance norm factors—especially the extent of delegation of key investment management and monitoring functions to outside professional organizations, and (ii) the governance structure of nonoccupational‐based pension funds. Moreover, we find an impact from external pressures related to country/regulatory characteristics in which the pension funds are based. Theoretical/Academic Implications In contrast with standard corporate‐focused legitimacy and stewardship explanations of socio‐environmental accountability issues, trusteeship theory implies that pension fund organization managers care primarily about societal‐wide issues concerning environmental accountability. We propose that trustee accountability for climate change involves a trade‐off between the strength of internal governance norms and external pressures. Consistent with this prediction, we find that corporate governance structure norms of pension fund organizations have a critical impact on their propensity to engage with climate risk transparency. Practitioner/Policy Implications The findings provide unique insight into the mix of internal governance norms and external pressure incentives facing asset management organizations that support the operation of trust‐based legal entities such as pension funds in providing public transparency on how they deal with risks and opportunities associated with climate change. The findings also inform the developing global public policy debate on whether pension funds should be subject to voluntary versus mandatory disclosure rules concerning their climate‐related risks and opportunities.