London Pensions Fund Authority sets plan for net zero goals

The London Pensions Fund Authority (LPFA) has today published its Investors Climate Action Plan (ICAP) outlining how the £7.6bn (€8.8bn) fund plans to achieve net zero by 2050 and tackle the financial risks posed by climate change.

The fund has set six goals covering the portfolio, its assets and the operations. LPFA’s immediate attention will be on moving its listed equity holdings towards net zero, supported by an extensive engagement campaign. Listed equities represents 50% of the fund’s assets, worth around £3.8bn.

The LPFA’s plan has been developed using the Paris Aligned Investment Initiative (PAII) framework to which the LPFA signed up in September 2021. The PAII is a collaborative investor-led global forum enabling investors to align their portfolios and activities to the goals of the Paris Agreement.

Robert Branagh, LPFA’s chief executive officer, said: “Climate change poses a risk to society, businesses, our assets, and ultimately, our ability to pay pensions. It is an issue of significant concern for our members and wider stakeholders but the transition to a net-zero global economy also presents us with sustainable investment opportunities.”

He added: “I’m proud of the progress that the LPFA has made in setting clear targets and publishing a realistic, science-based net-zero plan. However, we know that there is more that we need to do and we will be announcing more details on areas like climate solutions in due course.”

In its action plan, the LPFA commits to three portfolio goals, two asset goals and one operational goal.

Its portfolio goals include:

• reducing emissions: by 2030, the LPFA aims to reduce Scope 1 and 2 portfolio level emissions intensity to 13 tCO₂e/£m invested;
• maintaining a portfolio consistent with the Paris Agreement;
• investing in assets that help the global economy go net zero: the LPFA will increase investment in climate solutions required to meet net zero by 2050 or sooner.

The LPFA has not set a goal for the percentage of assets to be invested in climate solutions at this stage because of the lack of available data. It said it expects to set a percentage goal for investment in climate solutions during 2023.

As for its asset goals, LPFA is looking to invest in companies aligned to net zero. Its aim is that by 2025 at least 32% (by value) of its listed equity investments in material sectors would meet the net zero criteria as defined by the Net Zero Investment Framework (NZIF). The LPFA aims for this proportion to rise to 55% by 2030 and, by 2040, to ensure that all of the Authority’s listed equity investments in material sectors meet the criteria.

The Authority is also looking to apply pressure to companies to put net-zero plans in place by ensuring that at least 70% of financed emissions in material sectors resulting from its listed equities exposure are either assessed as net zero, aligned with a net-zero pathway, or the subject of direct or collective engagement and stewardship actions. By 2030, the LPFA will ensure that at least 90% of financed emissions in material sectors resulting from its listed equities exposure meet these standards.

LPFA’s operational goal is to reduce its own emissions – by 2030, it aims to reduce Scope 1 and 2 greenhouse gas (GHG) emissions by 50% per full time employee, relative to GHG emissions in 2022-23.

Peter Ballard, the LPFA’s director of funding and risk, led on the development of the action plan with support from investment consultancy Redington and working with LPFA’s delegated asset manager, LPPI.

“Our plan is about supporting the greening of the planet and the fund. We want to drive change in the real world so that the economy as a whole achieves net-zero emissions,” he said.

“This means that we’ll work closely with our delegated asset manager, LPPI, and collaborate with like-minded investors to make sure that we are pushing companies along their own net-zero path. This is new ground for many of us and we’ll be using our website to report on our progress as clearly as we can.”

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