Viewpoint: Progress managing climate risk means stops as well as sprints

Taking stock

Taking the time to step back and reflect seems like a luxury for anyone working in climate and sustainability. I feel like we are constantly running to keep up with such rapid developments in science, policy, research and our own industry – but stopping and taking stock is absolutely vital to ensure what we are doing is effective.

Brunel Pension Partnership has just taken stock of its approach to addressing climate change – a.k.a. conducting a climate stocktake, as we had pledged when we launched our first standalone Climate Change Policy back in 2020.

We pinched the idea from the Paris Agreement; article 14 calls for a five-yearly global stocktake “to assess collective progress under the Paris Agreement and address opportunities for enhanced action and support”.

The United Nations Framework Convention on Climate Change (UNFCCC) is currently in the middle of that process, having kicked it off at COP26 in Glasgow, and we have essentially sought to do the same thing – think deeply and take the time to listen and learn – and then improve and enhance our approach, setting more ambitious targets.

So what was our starting point?

Brunel launched our Climate Change Policy in early 2020. Its key objective is “to systematically change the investment industry to ensure that it is fit for purpose for a world where the temperature rise needs to be kept to well below 2°C compared to pre-industrial levels”.

In March 2021 we raised our ambitions still further, committing to be net zero by 2050 at very latest, and reducing our temperature rise target to 1.5°C.

We had set out a number of areas for action in 2020 to progress this ambition, structured around a five-point plan: Public policy advocacy, product governance, portfolio management, positive impact and persuasion. We needed to assess actions taken, outcomes achieved and our performance against our 2020 goals.

What steps did we take to assess?

Our first step was to ask our stakeholders what they thought of what we had done. We commissioned Chronos Sustainability to canvas their views of our policy – and how it should evolve – via interviews with member funds and other stakeholders (including investment consultants, journalists and NGOs).

In May and October 2022 we hosted two in-depth client workshops, where we shared quantitative assessments of portfolio decarbonisation, case studies, an assessment of activities, and the results of the stakeholder feedback.

What Have We Learned?

1. The commitment to a stocktake allowed us to set ambitious climate change goals

When we established our Climate Change Policy in 2020, our member funds supported our desire to set ambitious targets, but worried that these targets could compromise our investment performance.

The commitment to a stocktake reassured the funds, as it meant that we had a formal process in place to review our performance in both climate change and in investment terms – and then adjust as needed.

2. The stocktake helped us reflect on performance

Conducting a formal and rigorous review of our performance showed member funds the impact and outcomes of our Climate Change Policy commitments. We showed our receptivity to client concerns by involving them in the process, which in turn gave them greater confidence in the findings – thus the new policy’s greater emphasis on adaptation and physical climate risk reflects their priorities.

The engagement also reminded us that stakeholders’ capacity to assess and understand our performance is limited by industry-wide gaps in data and methodologies – and so it drove us to expressly prioritise data analysis and reporting.

3. A stocktake needs to look forward, not just back

Most significantly, we are beating our annual 7% carbon exposure reduction target – and thus ahead of schedule on meeting our larger 2030 target.

In addition, we have engaged with all of our investment managers on climate change; developed market-leading investment products in equities and in multi-asset credit; and have made significant investments in green assets via our infrastructure and secured income portfolios.

We have also established firm foundations – internal accountability and governance processes; strengthening data and performance measurement – that will underpin our work in the coming years.

4. It is important to recognise and celebrate success

Many challenges remain, but the stocktake also identified many areas where we met or exceeded our policy’s expectations. Engaging with our member funds and other stakeholders showed that these successes are well-recognised by the investment community; many stakeholders commended us for our transparency and accountability, and for the ambition that underpins our approach to climate change – in particular the focus on engagement and investment opportunities.

When you are targeting a multi-decadal global challenge like climate change, these encouragements matter.

From retrospection to action

Reflecting both internally and with all our stakeholders has enabled us to see how far we have come, and to begin to work out how we can travel a lot further yet. It has helped us develop ambitious targets, deepen relationships with our member funds and stakeholders; and it has flagged key areas of focus.

In short, in order to accelerate our climate progress, we needed to slow down for a moment to reflect. We believe our progress will be smarter as a result.

Click here for Brunel Pension partnership’s latest Climate Change Policy 2023-2030.

Faith Ward is chief responsible investment officer at Brunel Pension Partnership