Major UK pension funds among latest investors to join global net-zero commitment

Collectively

A dozen organisations signed on to the Net-Zero Asset Owner Commitment, orchestrated by the Paris-Aligned Investment Initiative (PAII), late on Monday (20 September). PAII has garnered the support of 118 investors collectively representing around $34trn of assets to date.

In signing the Net-Zero Asset Owner Commitment, organisations pledge to deliver net-zero emissions from their portfolios by 2050 or sooner. This, the PAII states, will require them to increase investment in low-carbon solutions and nature, and likely decreasing investment in high-carbon activities through divestment, engagement, or a combination of the two.

Long-term net-zero targets, the PAII states, should be backed up with credible, interim goals. Moreover, Commitment signatories must change their external advocacy and engagement in line with the global vision of a net-zero transition by mid-century.

Asset owners and managers will use the PAII’s Net-Zero Investment Framework as the blueprint for meeting the Commitment’s requirements. The Framework has been developed with input from PAII architect the Institutional Investors Group on Climate Change (IIGCC), as well as Ceres, the Investor Group on Climate Change and the Asia Investor Group on Climate Change.

It currently covers four asset classes – listed equity, corporate fixed income, real estate and sovereign bonds. Work is underway to include new methodologies for other asset classes, including infrastructure, private equity, hedge funds and derivatives.

As well as UK-based organisation Tesco Pension Investment, the London Pensions Fund Authority and Railpen, new joiners for the Net-Zero Asset Owner Commitment this week are AP Pension, AP3, AP7, the Church Pension Fund, Elo Mutual Pension Insurance Company, Ilmarinen, Lægernes Pension and PenSam.

Tesco Pension Investment’s trustee chair Ruston Smith said its signing of the Commitment “is a clear indication of our aim to address risk and opportunity, including through the investment in sustainable businesses to support a greener world”.

Pensam’s chief executive Torsten Fels said that committing to net-zero by 2050 is a “logical next step” in meeting its obligation to securing retirement funds in the short-term and long-term. He added: “This will both guard our members against stranded assets in the portfolio and see them benefitting from the investment opportunities the green transition is bringing forth.”

Reacting to the announcement, Make My Money Matter’s chief executive Tony Burdon called it “an important step in the right direction for our increasingly climate-conscious pension industry”.

Burdon said: With new announcements each week, the movement to make our money matter, for pensions to be proud of, continues to build pace.  It’s now important that these commitments are translated into firm targets and action plans, including urgent delivery against science-based interim milestones.

“Despite growing momentum, many UK pension funds are still yet to make net-zero commitments. That’s why we’re calling on all UK pension funds to listen to the science, their peers, and the growing movement of citizens demanding cleaner, greener pensions and agree to reduce their emissions by 50% this decade. By doing this, we can ensure our money helps tackle the climate crisis, not fuel the fire.”

Terra approach

In related news, ING has this month produced its first integrated climate report, detailing progress on its efforts to align its €600bn lending book with the Paris Agreement. The Dutch bank uses a methodology called ‘Terra’ to identify the highest-emitting sectors in its portfolios and to develop specific targets for engagement and divestment.

The report confirms that ING is adapting Terra to align with the aims of the Paris Agreement’s 1.5C trajectory, rather than 2C. A key facet of delivering this alignment will be reducing funding to upstream oil and gas activities by 12% by 2025, against a 2019 baseline. Short-term targets for all other high-emitting sectors in scope will be developed by the end of 2022.

However, progress to date has mainly been aligned with 2C. The report outlines how five of the nine sectors included in Terra’s scope are on track for a 2C pathway, with a further three sectors within 5% of this pathway. Aviation is the only sector off-track.

Key achievements to date for ING include decreasing its exposure to thermal coal mining by 90% since 2017 and closing 139 sustainable finance transactions in 2020. This figure is expected to grow significantly for 2021, with 133 transactions closed between January and June.

ING’s chief executive Steven van Rijswijk said the report, which will now be produced annually, “highlights what ING is doing to take on the existential threat of climate change”.

He added: “None of us can do this alone. For true change to happen it requires a concerted collaborative and consensus-based effort across all sections of society. By increasing the tempo of change now, we still have time to safeguard the future of our planet and the future generations who will inherit it.”

Sarah George