NOW: Pensions has today published its first Task Force on Climate-Related Financial Disclosures (TCFD) report covering the period 1 October 2021 to 31 March 2022.

The UK-based workplace pensions provider has committed its investments to net-zero greenhouse gas (GHG) emissions by 2050, with an interim target of 50% emissions reduction by 2030 based on 2019 levels.

Climate change is one of a number of sustainability issues important to NOW: Pensions’ investment strategy. The three priority sustainability issues are climate action, gender equality and living wages.

NOW: Pensions has taken steps to ensure its investments are resilient to climate change-related risks and opportunities, considering risk, return and real-world impact across its investment strategy.

The pensions provider has invested in green, social, and sustainable bonds for five years. It has also significantly increased its holdings of lower-carbon investments, for example, equity investments in lower-carbon companies.

Sustainable bonds, which total 13% of the portfolio as of 31 March 2022, finance a range of environmental projects, from solar and wind energy production to low-carbon transport and residential buildings.

NOW: Pensions has significantly increased its investment in sustainable equity. This doesn’t mean it has disinvested from energy companies, companies with higher carbon footprints, or companies exposed to social issues. NOW: Pensions invests on the basis that it expects their business models to change to be more sustainable.

The pensions provider and its investment manager Cardano engage with these companies with the aim of supporting them – and if necessary, requiring them – to transition to a lower-carbon business model.

Joanne Segars, chair of trustees at NOW: Pensions, said: “Climate change remains squarely at the top of our agenda. The climate crisis has profound implications for our savers. Left unchecked, runaway climate change will lead to substantial financial, environmental, and social consequences. This is clearly not in our savers’ best interests – which is why climate change is squarely at the top of our agenda.” 

“To help us manage climate change-related risks and opportunities, we have committed our investments to net-zero GHG emissions by 2050 at the latest. This means that the investments we make will not add to the amount of GHG in the atmosphere. We have also set an interim target, committing our investments to 50% emissions reduction by 2030 at the latest, based on 2019 levels,” she said.

Global economy is ’significantly behind schedule’ in 2050 net-zero targets

BNY Mellon Investment Management, in partnership with Fathom Consulting, has published new research – An investor’s guide to net zero by 2050 – which shows the global economy is significantly behind schedule in reaching 2050 net zero goals, but can bridge the gap with $100trn of ‘green’ investment.

Although green investment is growing, the research highlights that more action will be required from governments, asset allocators and corporations to facilitate the transition to net zero.

This $100trn represents around 15% of total global investment over the next 30 years, or around 3% of global gross domestic product (GDP) over the same period. Corporations in the S&P 500 alone will need to spend roughly $12trn of green capital expenditure by 2050 to remain on course, the report stated.

Shamik Dhar, chief economist at BNY Mellon IM, said: “Achieving net zero by 2050 will require transformational investment, but it is attainable. Get it right and the payoff to society and investors can be substantial. Investment is just one side of the coin.”

Wider policy action is needed to accelerate the pace of decarbonisation and there have been calls for a global carbon tax, but a coordinated approach is unlikely, he noted, adding that other incentives must be considered.

“Governments need to encourage and incentivise private sector investment whilst alleviating transition risks through policy levers,” Dhar said.

Brian Davidson, head of climate economics at Fathom Consulting, added: “The economics of climate change remain poorly understood. The study helps to remove some of the fog and will help corporations, investors, policy-makers and other stakeholders to better understand this important topic.”

MSCI launches new climate action indices

MSCI has announced the launch of the MSCI Climate Action Indices. The indices are designed for investors seeking to drive the low carbon transition in the real economy by investing in companies making progress towards emission reduction targets.

The new suite of equity climate indexes will consist of companies that are taking measurable steps to tackle their emissions, selecting from across the economy using the 11 Global Industry Classification Standard (GICS) sectors.

The suite of MSCI Climate Action Indices includes MSCI ACWI Climate Action Index, MSCI World Climate Action Index, MSCI Emerging Markets Climate Action Index, MSCI USA Climate Action Index and MSCI Europe Climate Action Index.

The new index is aimed at equity investors who want an index with exposure to all sectors of the economy and who favour a bottom-up index selection approach based on both current and forward-looking climate indicators. The index aims to include companies that are taking steps to tackle their emissions. The index is sector balanced and offers a broad market coverage.

The indices also aim to help investors who are seeking to follow the Glasgow Financial Alliance for Net Zero (GFANZ) recommendations on addressing real-economy emissions reductions.

Institutional investors can use these indices as reference benchmarks; to create products including ETFs, derivatives, structured products and mutual funds; and as a performance measurement benchmark for actively managed portfolios.

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