A group of local government pension funds in England has declared its commitment to ensuring its investment strategy meets the goals of the Paris Climate agreement.
The group, which manage assets worth £18 billion (AU$33 billion) is joined by Brunel Pension Partnership, one of the new pools of the Local Government Pension Scheme, which recently launched a new equities fund our behalf of the 11 local government pension schemes with £46 billion (AU$84 billion) behind them. Their target is to outperform the FTSE All-Share index by 2 per cent a year after fees over the long term.
They made the announcement at the Pensions and Lifetime Savings Association Conference and during Green GB Week last week. It commits the local authority employees’ pension companies for Merseyside, Islington, and the Environment Agency, together with Brunel, to take steps to ensure their investment strategies are compatible with the crucial goal of keeping temperatures rises to below two degrees.
Coordinated by ShareAction, an organisation with an ambition transform the mainstream investment system into a sustainable one, the commitment aims to align the funds’ portfolios with the goals of the Paris Agreement and includes promises to increase their assets in low-carbon investments, such as sustainable infrastructure, reduce their exposure to high-carbon assets, and conduct robust engagement with investee companies as set out in their Investor Agenda.
Paul Doughty, chairman of Merseyside Pension Fund told delegates to the PLSA conference: “I hope that Local Government Pension Scheme investors would follow the lead being set by us in making its investment strategy align with the goals of the Paris Agreement and by reporting using the TCFD climate risk framework. In 2018 we aim to reinvest one-third of our passive equities in the UK and North America markets to a low-carbon benchmark.
“We also plan to continue to increase our significant investment in infrastructure, with an expected £250 million (AU$458m) investment in renewables by 2020.”
Denise Le Gal, chair of Brunel Pension Partnership Ltd said: “Brunel is committed to being 100 per cent climate aware. We are decarbonising listed portfolios through investment risk analysis, engagement and using tools such as TPI and carbon footprinting.”
Shareaction is working with pension providers throughout Australasia, Europe and North America. It works by asking challenging questions at Annual General Meetings of pension companies, connecting pension schemes with members concerned about climate change, coordinating letters from investors concerned with Big Oil’s movement on climate change, and filing shareholder resolutions to encourage more ambitious progress, with the help of a Pension Power toolkit and other resources.
Claire Perry, UK Minister for Energy and Clean Growth, said: “I’m delighted to see how many more businesses and organisations such as ShareAction are seizing this multi-billion pound opportunity to energise their communities to tackle the very serious threat of climate change.”
There are 89 local authority pension funds attempting to combine forces into a fewer number of “pools”. The UK’s local authority pension funds association was recently seeking to appoint a third-party monitor for the system’s investment cost transparency tool – an organisation that can design, build, host and support a system for validating and checking submissions from fund managers.
In its current form, the LGPS Code of Transparency is voluntary, not having the ability to incorporate costs specific to asset classes outside of listed equities and bonds. However, private equity managers have pledged support for the code.