Avon, Phoenix Group and TfL: Pension schemes covering billions bolster net-zero ambitions

The TfL scheme has set a new 2045 net-zero target, supported by a pledge to reduce financed emissions by 55% by 2030. The move comes after the fund updated its exclusion policy to clamp down on coal, stating that it would take action to exclude other high-emitting sectors and firms “that have no interest in reducing global emissions”.

In a statement, the TFL fund trustees said: “Our objective is clear – to align the investment portfolio with industries, products, services and business models that are compatible with a sustainable planet, while securing stable and sustainable financial returns for members.

“To be net-zero by 2045 is clearly an ambitious target. However, [we] firmly believe that the net-zero journey plan is entirely consistent with [our] fiduciary responsibility to earn returns needed for the long-term financial health of the fund.”

The Avon Pension Fund, meanwhile, has built on an existing commitment to net-zero financed emissions by 2050 with pledges to reduce the absolute emissions of equity portfolios by 43% by 2025 and 69% by 2030. A 2020 baseline year has been set for these commitments.

The scheme will, as a first step, transition the £780m covered by its legacy low-carbon equity strategy in a manner consistent with the new Paris-Aligned Benchmark, developed by Brunel Pension Partnership and FTSE Russell.

“These changes mark a turning point in the Fund’s approach to climate change as we move towards solutions that offer credible pathways to net-zero” said Avon Pension Fund’s investment panel chair Shaun Stephenson.

“It is imperative that we continuously review our progress and I look forward to the next milestone in 2022, [when] we’ll be taking stock of how our strategy has delivered against its goals with a clear message that divestment remains an option where companies fall short of our expectations. I am immensely proud of the role the Avon Pension Fund Investment Panel has had to play in helping to get this decision across the line.”

Phoenix Group

The news from TfL and Avon came as the UK’s largest long-term savings and retirement firm, Phoenix Group, announced an ambition to cut the emissions intensity of its entire £250bn investment portfolio by at least 50% by 2030.

Late last year, Phoenix Group committed to setting verified science-based targets, in line with the Paris Agreement’s 1.5C pathway, to underpin its 2050 net-zero goal. The 2030 ambition will form part of the science-based targets, which will also entail a 2025 target to cut emissions intensity by at least 25%.  

Phoenix Group’s chief executive Andy Briggs said he is “personally committed” to the new targets.

Some £160bn of Phoenix Group’s investment portfolio consists of pensions.

As well as planning changes for its own business, Phoenix Group has forged a new partnership with the campaign Make My Money Matter, to encourage greater climate ambition across the investment sector. Since it launched last year, Make My Money Matter, spearheaded by Richard Curtis, has urged individuals and businesses to press their pension schemes to improve climate commitments and enhance emissions disclosure.

Briggs said: “We have been working with government and our industry to influence legislation that will enable our entire industry to invest more in sustainable assets.

“With just 20% of the world’s largest public companies having committed to net-zero targets, and only a quarter of these pledges passing basic robustness tests, we are encouraging others to take action and set near-term targets in line with the climate science too. We will be working with partners in the financial ecosystem and the many companies we invest in to encourage wider uptake of robust net-zero aligned pledges and plans.

“We will continue to drive forward action and by partnering with Make My Money Matter, we hope to inform the debate, harness the power of pensions, and support the case for further change as we approach COP26.”

Seizing the COP26 opportunity

To Briggs’ point, the Work and Pensions Committee last week published a new report on the opportunities of improving pension stewardship presented by COP26.

The report states that the UK Government should make every endeavour to build an international consensus on the role of pension schemes in achieving the goals of the Paris Agreement and to push towards global harmonisation of climate-related financial disclosures.

The UK is notably mandating disclosures in line with the recommendations of the Task-Force on Climate-Related Financial Disclosures (TCFD) from 2022 for some firms and broadening the requirement from 2025. COP26 could be a chance to get other nations to follow suit.

The report also urges the Government to prioritise engagement over divestment. Engaging with businesses is “more likely to be an effective approach” to deliver net-zero, the report states. This is because the buyers of high-carbon assets, or holdings in high-carbon businesses, may use their influence to actually intensify operations and, therefore, emissions.

The Work and Pensions Committee’s chair Stephen Timms MP said: “With pension investments unrestrained by borders, international agreement is going to be key if the potential for pension schemes to contribute to cutting carbon emissions is to be realised.

“Hosting COP26 provides the UK with a unique opportunity to build an international consensus on reporting standards and stewardship and the Government must seize it with both hands.”

The UK Sustainable Investment and Finance Association (UKSIF), which represents members with more than £10trn of assets under management. has welcomed the Committee’s report.

“We are pleased to see many of UKSIF’s recommendations reflected in the final report,” said chief executive James Alexander. “This report crucially includes the necessity of the UK maximising its COP Presidency to secure international agreement on greater harmonisation on climate reporting standards for schemes and other investors, and a call to government to ensure its policies incentivise good stewardship, which is a far more effective approach to making change in the real economy than divestment, which should be used as a last resort.”

Sarah George

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