London CIV, the asset pooling vehicle for 32 local government pension schemes in the UK capital, has completed an inaugural climate risk analysis and said it will set net-zero and interim carbon emissions reduction targets by September.
It said it had committed to setting the climate performance targets ahead of the UN climate change conference in November, and that this would follow further research and feasibility analysis in addition to client consultation.
It said the short-, medium- and long-term targets it set would be “designed into its funds” and integrated into future mandates to help it achieve them.
The investor, which has pooled £12.6bn (€14.7bn) as at the end of March this year, yesterday reported that it had completed its first climate risk analysis, noting that this extended to look into physical and transition risks, as well as how close the organisation was to achieving alignment with the Paris climate change agreement.
“As long-term investors, it was important that the analysis was not just a backward-looking carbon footprint, but an indication of our future risk in a range of different climate scenarios,” said Jacqueline Jackson, head of responsible Investment at London CIV.
“We hope to use the findings of this analysis to drive action, not only within the London CIV but also amongst all of our client funds.”
Findings included that the London CIV portfolio had a lower exposure to both fossil fuels and coal when compared with the MSCI World index. Its fund offering also had a lower carbon footprint than the MSCI World across all carbon intensity metrics, stemming mainly from a lower exposure to the utilities sector.
However, London CIV also noted that its consolidated equity and corporate fixed income exposure was “not compatible with warming below 2°C”, although apportioned greenhouse gas emissions were lower than the corresponding benchmark’s emissions trajectory.
Jason Fletcher, CIO at London CIV, said: “Whilst we believe that climate change management may add value to client returns – we know that it definitely improves our risk outlook.
“Our commitment to analysing and reporting on climate risk, is not simply about collecting data but how we action this information throughout the design and selection of funds and critically, how we can better target areas for engagement to achieve better outcomes.”
One of the key challenges it faces, London CIV said, is a limited supply of investment products meeting its climate change-related objectives and investment requirements. It said encouraging innovation was therefore critical to its product development and fund launch strategy.
According to London CIV, it currently has six “climate conscious products”, three in public equity and three in private markets, the latter set comprising a London-focussed fund set up with the Local Pensions Partnership and a renewable infrastructure fund and private debt fund.