Avon Pension Fund, part of the local government pension scheme (LGPS), will be transitioning its roughly £780m (€913m) legacy low carbon equity strategy into a Paris-Aligned Benchmark (PAB) as one of several “turning points” in its approach to climate change, it announced today.

Avon is one of 10 LGPS funds that are served by Brunel Pension Partnership, which this summer announced it had worked with FTSE Russell to develop PAB indices. It has licensed one of the benchmarks to give its clients the opportunity to adopt it for their passively-managed fund.

Avon today also said it had set a target to reduce the absolute emissions in its equity portfolios by 43% by 2025, and by 69% by 2030, compared with a 2020 baseline. The pension fund has already committed to becoming a net-zero investor by 2050 or sooner.

The LGPS fund today also stated it would be reducing its allocation to emerging markets, “choosing instead to concentrate its engagement efforts in developed markets where most of its capital is allocated”.

It said it could exert greater influence in these markets, and significant progress was already being made in collaboration with Brunel, Climate Action 100+ and the Institutional Investors Group on Climate Change.

“These changes mark a turning point in the fund’s approach to climate change as we move towards solutions that offer credible pathways to net zero”

Shaun Stephenson-McGall, chair of the Avon Pension Fund investment panel

The FTSE Russell PAB indices include activity-based exclusions in coal, oil and gas, and limit the active weight of banking sector constituents. Avon said the index was also designed to reward companies that generate green revenues and those that can demonstrate alignment with the goals of the Paris Agreement.

Indices that comply with EU climate benchmark rules must decarbonise on average by 7% per annum.

Shaun Stephenson-McGall, chair of the Avon Pension Fund investment panel, said the changes announced today were “the culmination of a lot of hard work” by the pension fund committee and marked “a turning point in the fund’s approach to climate change as we move towards solutions that offer credible pathways to net zero”.

“It is imperative that we continuously review our progress and I look forward to the next milestone in 2022 where we’ll be taking stock of how our strategy has delivered against its goals with a clear message that divestment remains an option where companies fall short of our expectations,” he added.

Paul Crossley, chair of the Avon Pension Fund committee, said: “Protecting our assets for the benefit of our members, as well as managing the risks and opportunities that climate change presents, is an extremely complex task but with the most recent changes to our investment strategy I’m confident that we are taking the positive steps necessary to deliver on our pledge to be Paris-aligned across our investment portfolio”.

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