Co-op, M&S and Royal Mail pension schemes have made portfolio net-zero commitments, showing that older, defined benefit (DB) plans can “navigate the obstacles they face in outlining a credible climate transition plan”, campaign group Make My Money Matter (MMMM) has said.
The three schemes have all recently made their commitments – M&S announcing its in late March, for example – and were highlighted in an announcement from MMMM in a bid “to show the progress being made by DB schemes”, a spokesperson told IPE.
Pace, the Co-op’s largest pension scheme, has set an ambition to manage its DB and defined contribution (DC) investments in line with achieving net-zero greenhouse gas emissions by 2050 or sooner, and the £11.4bn Royal Mail Pension Plan has done the same for its DB assets.
M&S is targeting reaching net zero across its portfolio by 2040. All three will aim to halve the emissions associated with their investments by 2030 at the latest.
Officials at the Co-op and Royal Mail schemes said a “challenging journey” lay ahead.
“It will take time and considerable effort to make the right adjustments, especially in the assets where methodologies for measuring carbon are still emerging, including and most importantly for us, UK Gilts,” said Richard Law-Deeks, chief executive officer of Royal Mail Pension Plan.
“Like many asset owners around the world, achieving our ambition is highly dependent on the actions of others and we are committed to engaging constructively and collaboratively on this topic across the diverse range of asset classes in which we invest.”
“Governments, financial institutions, our advisers and investment managers will need to play their part to make this a reality”
Simon Lee, head of Marks and Spencer Pension Trust and CIO at the M&S Pension Scheme
Simon Lee, head of Marks and Spencer Pension Trust and chief investment officer at the M&S Pension Scheme said the trustee had chosen the 2040 net zero target “because it can and should strive to achieve better outcomes for everyone” but that it could not achieve this alone.
“Governments, financial institutions, our advisers and investment managers will need to play their part to make this a reality,” he said.
The MMMM campaign’s announcement comes after pensions law firm Sackers published a net-zero guide for trustees, noting that it is not always clear what is meant by such a commitment and that legal considerations can be “something of a grey area”.
Separately, an “investing for tomorrow” working group operating under the auspices of the WTW Thinking Ahead Institute has developed a six-step net-zero action plan to help asset owners establish and execute a pathway to achieve their climate ambitions.
A survey of 50 large pension funds found that more than half do not expect their climate change mitigation targets for net-zero carbon dioxide emissions to be met, with those behind the survey saying that the climate pledges being made were “the start, not the end, of efforts to get the world on track for net zero”.
The key obstacle was that capital markets were not currently pricing in climate risks on a big enough scale to redirect capital towards the net-zero goal, they said.
Net-zero asset owner alliance and AFII enter fixed income collaboration
The UN-convened Net-Zero Asset Owner Alliance (NZAOA) and the Anthropocene Fixed Income Institute (AFII) will be collaborating with an overarching objective to promote net-zero alignment in global fixed income markets.
Erik Bennike, head of credit at PensionDanmark, a founding member of the NZAOA, said AFII’s focused approach on climate-related issues in the fixed income markets “with emphasis on hard cases” filled a gap in the coverage of traditional ESG research providers that would be of great mutual benefit.
Remco Fischer, UNEP FI programme officer for climate and co-lead of the NZAOA secretariat, added: “NZAOA members are very much looking forward to benefitting from the Anthropocene Fixed Income Institute’s deep and technical knowledge regarding the decarbonisation of global fixed income portfolios.
“While listed equity markets are very much in focus in the engagement and the decarbonisation debate, fixed income is for most asset owners the key asset class for steering their investment portfolios to net-zero emissions.”
AFII was founded by Ulf Erlandsson, a former credit portfolio manager at Sweden’s AP4, with the aim of shaking up the bond markets’ climate change credentials. It publishes markets-focused analysis and commentary, for example having recently flagged weaknesses leading up to the inclusion of a thermal coal miner in an ESG-branded ETF with explicit thermal coal exclusion criteria.