Brunel Pension Partnership, one of the UK’s eight local government pension scheme asset pools, has made biodiversity a distinct priority area following input from its board, clients and other stakeholders.
It also said that growing awareness of the investment materiality of nature and biodiversity encouraged the decision, which it made notwithstanding the complexity of ”working out where to start from an investment perspective”.
The pooling company’s stewardship activities on nature and biodiversity were previously captured under the theme of supply chain management. It said that in creating a new priority, it also took the opportunity to update priority area headings and “redistribute other activities to better balance resources and reflect the breadth and depth of our work”.
Its new biodiversity strategy includes commitments to ask asset managers to evidence their approach and support the development of and report against the guidance of the Taskforce for Nature-related Financial Disclosures.
Demonstrating real world change
The new strategy is outlined in Brunel’s third responsible investment and stewardship outcomes report, which also revealed that the pool has evolved its carbon metrics reporting to include absolute emissions.
It also said it had moved from using Enterprise Value (EV) as a denominator in its carbon metrics to using Enterprise Value Including Cash (EVIC), because the change “is what has been recommended as best practice”.
“We have started to look at what other analysis we can do to get under the bonnet and attribute changes in carbon footprint”
Faith Ward, chief responsible investment officer at Brunel
Faith Ward, chief responsible investment officer at the pool, said a benefit of not deducting cash, beyond avoiding negative enterprise values, was that using EVIC ensured that exactly 100% of all investee’s emissions would be attributed to the equity and debt holders as these now jointly determine 100% of the company’s EVIC.
Brunel also reviewed the decarbonisation of some its portfolios. It highlighted the emerging markets portfolio because of the progress made there (32.86% reduction of the weighted average carbon intensity) and it being the most carbon-intense, and said:
“Additional analysis of historical performance of the portfolio supports the conclusion that a large proportion of the improvement is from actual emission reductions from the company, rather than from changes in holdings or the impact of foreign exchange rates. This is the real world portfolio decarbonisation that we are seeking.”
Asked if Brunel was making more of an effort to distinguish “real world impact from virtual emissions reductions as a result of portfolio decarbonisation”, as recommended by members of the Finance Sector Expert Group for Race to Zero and Race to Resilience (FSEG) in a discussion paper released this week, Ward told IPE:
”We aware of the need for real economy decarbonisation, not just tweaking portfolios to look better on certain metrics. Carbon intensity metrics can be impacted by revenues and foreign exchange as well as by changes in company structure. We have started to look at what other analysis we can do to get under the bonnet and attribute changes in carbon footprint.”
”This was just a one-off pilot, but we feel it’s where we need to move toward so we can demonstrate real world change,” she said.
Reporting asset manager outcomes
In the responsible investment and stewardship outcomes report, Brunel also said engagement during 2021 “made significant progress”.
It said its engagement provider EOS engaged with 839 Brunel-held companies on 1,337 milestones and that progress against one or more milestones was achieved for 50% of the engagement objectives set during the year.
Commenting on the pool’s efforts to track asset manager engagement and outcomes, it said it had aspired to include a breakdown of the themes on which its active managers engaged on, supported by graphics, for this year’s report “but, as highlighted previously, developing this reporting may take time, as the data cleansing required is vast”.
It said its next steps are to “continue to evolve meaningful milestone reporting to cover our managers, and Brunel’s activities, whether internal or collaborative” and to collect an updated engagement outcomes template annually and evolve the pool’s reporting on progress against these objectives.