Paul John Marcel Klumpes

This paper overviews an overlapping generations financial cash flow valuation model that evaluates the financial sustainability of English NHS Trusts. It quantifies the financial sustainability constraints related to societal demographic shifts that affect their ability to maintain service delivery quality. The financial model computes a new long-term financial sustainability performance metric based on the notion of the Social Return on Investment (“SROI”). The measure evaluates the financial sustainability of two English acute care hospital foundation Trusts. Significant generational imbalances are identified for both sample NHS Trusts, both within different cohorts of existing generations, and between existing and future generational cohorts. Suggestions are provided for implementing these ideas and expanding actuaries’ expertise and skill sets.

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.

Disclosing transition plans to meet future net zero climate targets requires organisations to fundamentally move beyond traditional historical-oriented stewardship reporting towards forward-looking accountability to meet their obligations to their future shareholders and stakeholders. However, despite a range of varying requirements concerning disclosure of climate-related targets to meet the Paris Agreement, confusion remains over the appropriate form, content and standard of transition plan disclosure that are required to implement these targets. The former UK based Transition Plan Taskforce set out globally leading requirements for transition plan reporting in 2023, however the extent to which these recommendations have since been implemented has not yet been comprehensively analysed. This paper summarises the key differences between UK, European and International guidelines for transition plans and then discusses the results of an analysis of variations in transition plan reporting practices by a sample of globally large financial and industrial organisations. It is predicted that a combination of both firm-level climate risk and country-level institutional factors are associated with the propensity to produce public transition plans. The empirical results are largely supportive of these predictions. Firms with greater levels of engagement with climate risk (as proxied by the CDP score), and UK and-or EU based firms, are more likely to produce climate transition plans. The empirical results are corroborated by qualitative analysis, which compares examples of good practice transition plan reporting by a sub-sample of firms within each industry sector. It is concluded that the resulting lack of clarity by regulatory authorities, and diversity in transition plan reporting practices by globally large financial and industrial firms, may potentially result in confusion and a lack of informed decision-making by their stakeholders and policymakers concerning climate-related resilience and risk mitigation actions.

This paper provides practical guidance to UK-based financial institutions (UKFIs) that are subject to the “operational resilience” guideline requirements of the Bank of England (BoE), Prudential Regulatory Authority and Financial Conduct Authority, issued in 2021, and fully effective for 31 March 2025. It contains practical suggestions and recommendations to assist UKFIs in implementing the guidelines. The scope of the paper covers issues related to (a) overviewing the latest equivalent operational resilience guidance in other countries and internationally (b) identifying key issues related to risk culture, risk appetite, information technology, tolerance setting, risk modelling, scenario planning and customer oriented operational resilience (c) identifying a framework for operational resilience based on a thorough understanding of these parameters and (d) designing and implementing an operational resilience maturity dashboard based on a sample of large UKIFs. The study also contains recommendations for further action, including enhanced controls and operational risk management frameworks. It concludes by identifying imperative policy actions to ensure that the implementation of the guidelines is more effective.

This study provides the first evidence of the propensity of globally large industrial US and European firms to adopt enterprise risk management (ERM) processes in response to the recent challenges of systematic global risks associated with pandemics (COVID-19), increased geopolitical risks (e.g., the Ukraine–Russia conflict), increased cybersecurity threats and the challenges posed by climate change and biodiversity loss. Consistent with the predictions of standard risk management theory, it is predicted that there is a positive inter-relationship between the propensity to adopt ERM and total firm risk, after controlling for various firm-related financial characteristics, complexity and sources of idiosyncratic risk. The empirical research is based on an industry-matched sample of the 100 largest US and European firms globally. The empirical results are generally consistent with these predictions, but for European firms, total firm risk is not associated with ERM adoption. Furthermore, there is no statistically significant relationship between sample firms’ risk-adjusted performance and their ERM adoption propensity, and there are also significant cultural–institutional variations that explain the differences between the ERM adoption practices between US and European sub-sample firms. The findings raise new questions about the validity of ERM in addressing globally important risk challenges faced by the largest multinational firms.

Prior research empirically finds that the systematic equity risk for US firms as measured by beta reflects the risk of their defined benefit pension plans, despite opaque and complicated pension accounting rules. This paper re-examines this question in the context of subsequent clarification of these rules, and the growing importance of non-defined benefit pension funds. This issue is examined by comparing standard equity-based models with a broader pre-existing shareholder model of the reporting entity to re-examine the relationship between firm equity risk and pension plan risk. The empirical tests are conducted on a sample of S&P 500 firms during the first three years of the introduction of the revised pension accounting rules (2006–2008), based on panel data regression relating firm risk to pension risk and controlling for other variables. In contrast to the prior findings of JMB, the estimated cost of capital is additionally sensitive to the following: (a) alternative explicit versus implicit definitions of pension liability; (b) the nature and scope of long-term deferred compensation arrangements; and (c) the scope and nature of investment-related risks through investment in sponsoring company stock that are associated with these pension arrangements.

The consistent recognition of both explicit short term and implicit long term elements of post-retirement contracts between employees and the firm can have a significant implication for estimating a firms long term sustainable cost of capital. In this paper, we show that the significant levels of investment in company own stock by pension and post-retirement plans can effectively dilute the interest of pre-existing shareholders in the enterprise value of corporations in ways which are not revealed by a classic entity theory perspective on equity. We test the empirical implications of adopting a pre-existing shareholder model of the reporting entity to re-examine the relationship between a firm’s sustainable cost of capital and various sources of idiosyncratic risk. We find that the estimated cost of capital is sensitive to: (a) alternative explicit versus implicit definitions of pension liability; (b) the nature and scope of long-term deferred compensation arrangements; and (c) the scope and nature of investment-related risks through investment in sponsoring company stock that are associated with these pension arrangements.

This chapter provides new evidence concerning the incentives faced by globally large asset owners and asset management organisations to become signatories of the UN-sponsored Principles for Responsible Investment (PRI). Together, these are the globally largest institutional investors, whose equity investment portfolios influence a substantial proportion of global carbon emissions. PRI signatory status is an indication of a commitment to responsible investment practices. However, whereas asset managers are primarily accountable to their clients for achieving short-term performance, asset owners have a fiduciary responsibility to act in the longer-term interests of their members and beneficiaries. We predict and find that asset managers therefore face different incentives to sign up to the PRI than asset owners. Globally large asset managers are more likely than asset owners to join up to the PRI. Asset owners who sign up to the PRI are also likely to engage with climate change through TCFD reporting and membership of Climate Action 100+. By contrast, European-based asset owners, who face more stringent reporting and ethical responsibility standards, are more likely to sign up to the PRI. The findings highlight the different legitimation versus institutional-based accountability factors incentivising globally large asset managers and asset owners to become PRI signatories.