A change in the consensus around the role of offsetting to achieve net zero was one consideration, explains UK master trust Cushon’s director of policy and research

A little over three years ago, the Cushon Master Trust launched a new pension strategy in the UK with a mission to challenge the volume of emissions that pension companies fund through their investments.

Cushon, which now has £2bn (€2.3bn) in assets under management, wanted to demonstrate that a pension fund could drive down the emissions it finances while maintaining diversification in its investments and performance for its members.

In the UK, pension funds have £3trn of assets under management, invested in diverse companies, almost all of which will be greenhouse gas emitters. That goes for us, too. Though we’re driving down the emissions we fund through our investments, our default strategy still finances greenhouse gasses.

As a result, in January 2021, alongside the default fund, we launched ’Net Zero Now’ – an accompanying pension proposition that was actively reducing emissions, while offsetting those that it did fund. It proved very popular, and yet last week we announced that we have closed the Net Zero Now product to new employers to instead focus all efforts on decarbonising the default fund.

By “closing” we mean that we’re ceasing carbon offsetting, but the underlying investment strategy remains the same and very much open.

In under three years, we have cut the Scope 1 and 2 carbon footprint of our default fund (per million dollars invested) by 44% since we launched it. Compared to our independently verified industry benchmark, the carbon footprint of the Cushon Sustainable Investment Fund is 64% lower, and we’re on course to reach an 80% reduction by September 2030.

Employers particularly valued that ’Net Zero Now’ raised awareness of the impact pensions have on the climate and then provided them with a solution they could implement. Pensions represent a significant cost for employers, and yet many tell us that their employees do not recognise the benefit they are receiving because pensions are generally disengaging.

Photo of Steve Watson, director of policy and research at Cushon Master Trust

“Given this change in consensus, we did not think it was appropriate to continue marketing a ’net-zero’ product that offsets avoidable emissions”

Steve Watson, director of policy and research at Cushon Master Trust

By creating a pension to be proud of that aligns with employee values regarding the climate it not only increases member engagement in their savings, but member engagement in the contribution their employer makes.

Responding to new consensus

The ’Net Zero Now’ offering – effectively the Cushon Sustainable Investment Strategy plus offsetting – attracted a lot of employers, and as a result reached anticipated capacity within three years. So why not expand capacity?

Expert consensus around the role of offsetting to achieve net-zero has also evolved, particularly in the last two years. The consensus is that offsets should now be excluded from net-zero calculations in order to encourage abatement – i.e. removing all avoidable emissions from the value chain.

As a responsible company we believe abatement is the most important route to reaching the 2050 Paris climate goals. Given this change in consensus, we did not think it was appropriate to continue marketing a ‘net-zero’ product that offsets avoidable emissions, which is why we have chosen not to expand capacity.

Abating emissions has been our mantra since we first launched our pension fund. Our progress to date has exceeded our original targets, and we believe we should focus efforts on further decarbonisation.

Across our listed market investments, we’re investing our money in companies reducing their atmospheric impact with credible transition plans. We also have one of the largest allocations to private markets in the UK pension sector, investing directly in windfarms, solar energy, sustainable agriculture and natural capital.

These are real world projects driving real world change that members can see, touch – and in some cases even taste. They can see their savings doing good.

While ‘Net Zero Now’ as a product garnered a lot of attention, the work to reduce financed emissions across all assets under management in the underlying default fund will have the greater long-term impact. We believe that this will do as much, if not more, to engage all of our members with their pension than offsetting ever could.

Steve Watson is director of policy & research at Cushon