Transforming our investment portfolio for a lower carbon world

We are all witnessing the impact of climate change on our lives and many of our employers have declared climate emergencies in recent months. The current global health crisis underscores the importance of mitigating such risks on a global scale. Climate change, in particular, represents a systemic risk to people, the planet, and to the investment returns which are necessary to enable payment of pensions. The need for action on the climate crisis is more critical now than ever before.

Avon Pension Fund, already recognised as a leader in Responsible Investment, has recently reviewed its investment strategy to support the transition to a greatly reduced carbon economy. The changes we have made will enable us to lower our carbon footprint and invest more capital in renewables, while preserving our ability to guarantee pension payments to beneficiaries.

In each of the following areas, we have set clear targets and milestones to ensure that our portfolios are aligned with the Paris Agreement ambition to limit global warming to below 20C.

1. Reduce carbon exposure:

We aim to be 30% less carbon intensive than our benchmark by 2022 by reducing our carbon exposure across all our equity holdings.  We already invest £490m in Low Carbon global equities. As such our equity portfolio is 22% less carbon intensive than a mainstream portfolio, reducing the potential financial impact from assets with a higher exposure to carbon.

2. Invest sustainably:

We aim to invest at least 30% of our portfolio in sustainable and low carbon assets by 2025 or earlier.  We are doubling our allocation to renewable energy infrastructure projects such as clean energy and social infrastructure projects, to £225m or 5% of our assets. In addition, we are investing at least £450m or 10% of assets in companies that are responding positively to the challenges of climate change, environmental sustainability or making a positive commitment to social well-being.

3. Engage:

We use our influence as part of the £30bn Brunel Pension Partnership to encourage change in the wider industry. Engaging collaboratively as a pool amplifies our voice in persuading companies and fund managers to adapt their business models to align with the Paris Agreement.  For example, as part of Brunel we recently co-filed the first shareholder resolution at a European bank, calling for Barclays to phase out lending to non-Paris aligned companies. We also lobbied BlackRock on its climate change position and actively voted against the management of Exxon Mobil and BHP Billiton on climate related disclosures.

We also support investor led initiatives such as ClimateAction100+ and Institutional Investors Group on Climate Change to increase pressure on companies and governments to align with the Paris goals.  In 2023, ahead of the Paris Stocktake, we will review the effectiveness of our engagement strategy and consider whether selective divestment is necessary.

The Fund will be giving an update on our climate emergency strategy later in the summer and full details will be available on the Avon Pension Fund members’ website www.avonpensionfund.org.uk

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