The economic and societal impact of Covid-19 is now becoming more apparent and poses many additional challenges for companies, consumers, governments and investors alike. In our last newsletter we communicated our plans to directly address the risks posed by climate change. As we start to adjust to the ‘new normal’ it is important we redouble our efforts to transform our portfolio for a lower carbon world.
Amidst the unprecedented market volatility in March, companies responding positively to the challenges of climate change, environmental sustainability and social well-being were able to demonstrate their value. Over the first three months of the year, the Fund’s low carbon global equities outperformed the mainstream equity market and our sustainable equity portfolio experienced roughly half of the severe declines suffered by its benchmark.
We continue to make progress in the following areas, which remain critical if we are to achieve our ambitious climate change goals: -
1. Reduce carbon exposure:
The Fund analyses its carbon footprint every year. This year saw a 12% year-on-year improvement in its carbon exposure (measured on a Weighted Average Carbon Intensity basis) meaning that the Fund invests in less carbon intensive sectors and companies than the wider market.
2. Invest sustainably:
Historically as oil prices fall renewable energy becomes more expensive in comparison and therefore a less attractive means of generating power. However, this has not happened due to the underlying demand for ‘clean’ energy and government policies which has lowered generation costs for renewables and made them more competitive when the price of fossil fuels fall. This is positive for the Fund as it means we will continue to benefit from increasing our investment in renewable energy infrastructure.
3. Engage:
In our last newsletter we published details of a landmark shareholder resolution we supported as part of Brunel calling on Barclays to phase out lending to non-Paris aligned companies. The bank has since committed to becoming net carbon zero by 2050 and will see it consult with shareholders on how to achieve this. The result is a great example of the power of Pooling and highlights the value of shareholder engagement as the Fund seeks to deliver on its ambitious climate change objectives.
Examples of how we are delivering on our objective to deliver sustainable returns in a lower carbon world
Case Study 1: Engaging with key policy makers
Avon Pension Fund calls on EU leaders to ensure a sustainable economic recovery from COVID-19 which supports the EU Green Deal & upholds the Paris Agreement. The letter, prepared by the Institutional Investors Group on Climate Change (IIGCC), and sent to EU heads of state and government received support from 109 investors representing €11 trillion in assets.
This follows recent engagement, co-ordinated by the IIGCC and supported by Avon Pension Fund in a letter to the UK Prime Minister calling for a recovery from the pandemic which builds a more sustainable, inclusive and resilient UK economy.
Case Study 2: Investing sustainably
Through one of the portfolios managed by Brunel, the Fund has recently invested capital in the construction and operation of two new-build glasshouse projects covering 29 hectares; size enough to provide the UK market with 10% of its yearly consumption of tomatoes and sweet peppers!
The glasshouses are heated using waste heat from a nearby water treatment facility and qualify for the Renewable Heat Incentive scheme. The electrical power for the heat pumps comes from on-site Combined Heat and Power engines and the CO2 from these engines is cleaned up and pumped into the glasshouses to improve crop yields. The overall result is a carbon footprint that is circa 75% lower than produce grown in a comparable gasheated facility.