The Environment Agency Pension Fund (EAPF) has stopped hedging its overseas currency exposure completely, estimating that changes in exchange rates are unlikely to trigger more than a 13% shift in asset value.

The fund said it returned 8.4% over the course of the last year, below its 14.2% return in 2013.

However, the results nevertheless saw funding within the EAPF’s £2.3bn (€2.9bn) active fund increase to 99%.

It has recently implemented a new investment strategy that seeks “maximum value […] while minimising risk”.

According to the active fund’s annual report, it decided to wind down its hedging programme over the course of the last financial year following questions over its effectiveness in reducing equity risk.

“Potentially more effective approaches to managing and reducing risks are currently under review,” the report added.

Until the end of the 2012-13 financial year, the EAPF hedged well over half of its £1bn non-sterling exposure, leaving only £387m in assets unhedged.

The fund also calculated that its foreign exchange volatility stood at 13%, resulting in a potential £88.9m change in the value of its current overseas listed equity, a £41.6m change in the pooled equity holdings and a £9.8m change in overseas private equity.

The EAPF also revealed that it was close to meeting its 25% target for exposure to what it regarded as the sustainable and green economy, noting that the £558m exposure at the end of March meant 24% of assets were allocated to the strategy.

It added that, of the 24%, nearly half was invested in firms with more than 20% of revenues from energy efficiency or alternative energy projects, as well as waste water treatment or public transport.

“A key part of our progress to meet our target was the allocation of £250m to real assets covering real estate, infrastructure, forestry and agricultural land to Townsend Group,” it said.

“The mandate places a high priority on long-term responsible investments that meet our financial targets, with a preference to invest positively in sustainable real assets such as energy efficient buildings, renewable energy projects, public transport, water treatment facilities, eco-friendly farming and sustainable forestry.”

However, it noted that its attempts to monitor the environmental impact of its holdings had revealed the recent shift towards clean and sustainable technologies had increased its environmental footprint, resulting in the active equity holdings exceeding the average MSCI All County World indices’ exposure.

“Many of these companies are focusing on delivering sustainable solutions within their specific industries, whereby the environmental benefits … will be realised in their use downstream,” the fund said.