The Local Government Pension Scheme (LGPS) pension pool Brunel Pension Partnership has shifted more than £3bn (€3.5bn) of its passively-managed assets to a new FTSE Russell Paris-aligned benchmark (PAB) series that it developed with FTSE Russell.
Five of the pool’s pension fund members – Wiltshire Pension Fund, Oxfordshire Pension Fund, Environment Agency Pension Fund, Devon Pension Fund and Avon Pension Fund – took the decision to switch their passive fund allocations to the new FTSE benchmark series, Brunel announced.
The benchmarks, which harness data across a range of climate factors to provide a climate-linked tilt exposure and achieve Paris alignment – form a core element of the partnership’s collective commitment and journey to net zero, it said.
Legal & General Investment Management (LGIM) manages the Brunel passive equity funds now adopting the new benchmarks; the Brunel transition is one of the largest passive fund launches (by assets under management) in LGIM history, the pool said.
“FTSE Russell’s Paris-aligned benchmark series not only meets the minimum requirements of the EU’s Paris-aligned benchmark criteria by achieving a 50% reduction in carbon emissions over a 10-year period, but go a step further by integrating forward-looking metrics and governance protections from the Transition Pathway Initiative,” Brunel noted.
Faith Ward, chief responsible investment officer at Brunel, said: “The transition of £3bn to the new Paris-aligned benchmarks is an indication of how indices can be a major part of the solution to climate change. Crucially, these indices harness the data we already have, including forward-looking metric, not least TPI metrics. But they are also flexible enough to change in the future, as the data continues to improve.”
Aled Jones, head of sustainable investment, EMEA, at FTSE Russell, added: “Investors are increasingly recognising that innovative passive strategies represent an effective way to mitigate climate risk, while also capitalising on the investment opportunities offered by the growing green economy.”
Wiltshire Pension Fund’s pathway
Additionally, the Wiltshire Pension Fund has today anounced its pathway towards the goal of net-zero investments by 2050 to reduce carbon emissions and meet the demands of its members.
“The fund is committed to a low carbon portfolio, by ensuring it invests in global equities that are weighted according to their carbon intensity. This approach has enabled the fund to reduce its carbon footprint without sacrificing any financial returns for its members,” it said.
As part of the Brunel pool, Wiltshire has also adopted the FTSE Russell PAB as an additional step to reduce emissions, the scheme said, adding that this move will help Wiltshire achieve its investment strategy statement goal of net zero by 2050, while also protecting investments from risks of exposure.
Richard Britton, chair of the Wiltshire Pension Fund committee, said: “We are very aware that responding to climate change is important to our scheme members, and we are fully committed to taking action against this risk in order to safeguard the fund’s investments. Working collaboratively with our partner funds and the Brunel pool, we are proud to have helped develop a forward-thinking, cost-effective strategy to help us meet our carbon reduction goals.”
The Wiltshire scheme is part of the Brunel pool – a collaboration with nine other LGPS funds created following the government directive to create asset pools. Strategic asset allocation remains the responsibility of LGPS funds, recognising their authority’s specific liabilities and cash-flow.
Brunel believes asset owners and asset managers need to act with added urgency to ensure finance can be part of the solution to climate change. A major element of the action needed is transitioning passive funds to PABs.
The pool said that passive investments globally rose above $15trn (€12.9trn) in 2020.