The birthplace of cool

Judge’s comment: “This is very good on all three major counts: decarbonisation, green investments and stewardship. Plus, it is strong on collaboration, too”

In what it believes to be the first of its kind for a pension fund anywhere in the world, the UK’s Environment Agency Pension Fund (EAPF) published its formal Strategy to Reduce Climate Risk in April 2014. This complemented the comprehensive evaluation of exposure to fossil fuels that the fund undertook in 2013, which itself built on the carbon footprint work EAPF has carried out each year since 2008.  

EAPF’s approach combines a top-down and bottom-up analysis of the portfolio. On the top-down side, it looks at climate risk strategically across all asset classes, countries, regions and sectors, with a top level commitment to work towards an investment strategy that supports staying within a 2°C increase in global mean temperature.

From the bottom-up perspective, the fund has adopted a risk-based approach that restricts holdings in the most carbon intense companies, recognising that some companies are proactively seeking to reduce their carbon exposure. EAPF’s concern is that it would lose the ability to influence and hold companies to account if it divests completely.

Given that asset managers integrate climate-risk criteria and principles in their stock selection and engagement plans, EAPF’s early commitment to manage climate change risk since 2008 has led to a redution in its portfolio carbon footprint of 44%. It continues to use its influence through its active engagement and voting policy to encourage the companies it invests in to address and reduce their own carbon risks, and thereby to help tackle climate change more widely. Regular monitoring means the EAPF can produce extensive reports on the progress of climate-related risk management each year in its annual report.

So how does the strategy work in practice? EAPF points to the following highlights during the period under review:

•              Passive global equities are now managed against the new MSCI Low Carbon Target World index. The amount involved is around £280m (€389m), which represents over 10% of the fund overall

•              It has exceeded its target to invest 25% of the fund in clean and sustainable companies by 2015. 

•              In October 2014, it launched a special area on its website that details EAPF’s approach to climate-related risk and its carbon footprint

•              Promotion of carbon footprint management to other pension funds through panels, presentations, articles and training sessions to encourage them to consider climate risk in their investment strategies

•              Support of the Investor Group on Climate Change and the United Nations’ UNPRI code on a wide range of events and policy initiatives. These have included webinars on climate risk in real estate

•              EAPF has launched an initiative to engage the UK’s actuarial profession in tackling climate risk

•              Alongside 150 other major investors, the fund took part in filing a special resolution at the 2015 AGMs of BP and Shell, calling on them to improve the transparency of their climate-related risk management.

•              It continues to expand its climate risk and, specifically, carbon stranded assets risk management in the engagement plans of its managers, who complement the EAPF’s research in these areas with their own to optimise their stock selection and make better informed choices. 

Finally, EAPF is currently consulting on a dedicated policy to address climate change that aims towards an updated and even more comprehensive strategy to reduce the risk posed by its carbon footprint and climate change issues in its portfolios, while fully supporting external initiatives that seek to address climate change on a wider scale. 

2014 Essentials

Environment Agency Pension Fund

United Kingdom

Founded in 1966

Defined benefit public pension fund


  • active: 11,250
  • retirees: 5,453
  • deferred: 6,883

Assets: €3.2bn


  • one year: 8.4%
  • three years: 9.1%
  • ten years: 7.51%

Quick facts

  • Launch of its Strategy to Reduce Climate Risk
  • AV44% reduction of portfolio carbon footprint at overall fund level since 2008
  • Extensive proactive engagement and climate-risk collaboration policy


  • The Church Commissioners United Kingdom
  • FRR France


  • Adina Grigroiu
  • Andreas Hoepner
  • Georg Inderst
  • Raj Thamotheram