Church of England Pensions Board: Rising portfolio emissions need not signal net-zero failure

The Church of England Pensions Board (CEPB) has said it is committed to reaching net zero by 2050, but says the path might not be linear – and emissions intensity could fluctuate as the board prioritises genuine reductions.

Portfolio emissions are falling across much of the pensions industry, yet the question of whether that translates into real-world decarbonisation is something the sector is increasingly grappling with.

Speaking to IPE, Sara Taaffe, responsible investment analyst at the board, says investors need to look beyond headline portfolio emissions reductions in order to judge whether climate strategies are having an impact in the real economy.

The board reported a 57.8% reduction in public equity emissions intensity from its 2019 baseline, compared with its target of a 35% reduction by 2025, according to its 2025 Climate Risk Report.

CEPB measures the emissions intensity of its public-equity portfolio against a 2019 baseline and targets a 7% year-on-year reduction, alongside a commitment to reach net-zero across its investment portfolio by 2050 or sooner. Public equities accounted for 25.7% of the portfolio in 2025, up from 19.5% a year earlier, with 10 holdings accounting for 40% of its weighted-average carbon footprint.

However, Taaffe warns against treating the reduction as a direct measure of real world decarbonisation.

“The portfolio emissions intensity metric is important and it helps us understand what is happening in our portfolio,” she explains. “But I don’t think it paints the full picture, and we really want to ensure that we are supporting genuine emissions reduction in the real economy.

“I wouldn’t present it as wholly attributable to real world decarbonisation.”

A cleaner portfolio does not necessarily mean a cleaner economy, Taaffe adds, as portfolio-level emissions reductions may not reflect equivalent reductions in the real world.

Portfolio emissions versus real-world impact

Looking across the industry, Taaffe and her team are not outliers in holding this view.

Earlier this year, The People’s Pension dropped its 1.5°C-aligned portfolio target in favour of a more bottom-up approach, arguing that climate strategies needed to reflect real-world transition conditions.

The majority of the CEPB’s public-equity holdings are held through the FTSE TPI Climate Transition Index, which assesses companies against considerations including green revenues, climate governance and forward-looking climate commitments.

“In principle, while we don’t overweight companies due to their emissions today, we would expect that we’re likely to see greater real-world decarbonisation in the portfolio over time because we’ve overweighted companies that are simply better prepared for the transition,” Taaffe says.

Beyond a single emissions figure

The path to net zero should not be judged by a single annual emissions number, CEPB believes. Instead, the board looks at a wider set of indicators, including targets, emissions performance, disclosure, decarbonisation plans, capital allocation, policy engagement, governance and the just transition.

Taaffe says a temporary rise in emissions would only be defensible if it were consistent with the long-term objective of real-world decarbonisation. The board could, for example, consider whether an exposure was linked to credible transition activity, whether a company or sector had robust plans and whether asset managers were aligned with its expectations. A deterioration across the wider set of indicators would cause greater concern.

“An emissions figure in isolation” would not be enough to determine whether the portfolio was moving in the wrong direction if those other factors were improving, she adds.

Rising portfolio emissions would, therefore, not necessarily indicate a failure of the board’s net zero strategy, provided other indicators showed that companies and the wider economy were moving in the right direction.

Others in the industry are also adopting this way of thinking.

Last year, Barnett Waddingham urged pension funds to be prepared to recalibrate net zero targets rather than “blindly reduce emissions”, arguing that schemes also need to manage financial risks and drive lower real-world emissions.

The emphasis on policy and systemic risks builds on the board’s Climate Action Plan, which was launched in 2023. The plan recognises that achieving net zero is not simply a matter of individual companies setting targets and includes public policy engagement among its strategic pillars.

Policy as a transition risk

Policy is becoming an increasingly important part of that assessment. The report’s scenario analysis looks at a range of possible transition pathways, while Taaffe says more rapid and orderly transition scenarios produce the strongest outcomes.

However, those scenarios depend heavily on the policy environment and its alignment with the Paris Agreement.

“If we have a policy environment that enables a 1.5°C transition, then it makes that scenario more likely to happen,” she says.

For the board, this means looking not only at companies’ emissions and transition plans, but also at whether their policy engagement supports those commitments. Taaffe warns that companies can increase transition risk when their lobbying conflicts with their stated climate commitments.

“When companies have misaligned lobbying, for example, publicly supporting the Paris Agreement while lobbying against policies that would help deliver it, that can create a more unpredictable and disruptive transition,” she says.

This can create a material risk for both companies and investors. CEPB has adopted a voting policy under which it votes against the re-election of the chairs of Climate Action 100+ companies that do not publish a responsible climate lobbying report.

Systemic stewardship

The board is also putting greater emphasis on systemic stewardship, where success is measured not simply by changes at individual companies but by whether investors can improve the resilience of entire economic systems.

“Traditional stewardship asks whether we’ve changed companies, and systemic stewardship asks whether we’ve helped create conditions for an entire system to function better.

“Success isn’t simply convening, but it’s also about producing frameworks, standards, expectations or tools that help to influence action,” says Taaffe.

This reflects a broader view that the success of a pension fund’s climate strategy cannot be judged solely by changes in portfolio emissions, but also by whether investors are helping to create the conditions for wider economic systems to transition.

For the board, that work ultimately comes back to beneficiaries whose interests stretch decades into the future.

“For a pension fund, we have beneficiaries into 2100. Our success hinges on the success of the economy more broadly,” Taaffe adds.

Climate risk through a systems lens

Today, the board increasingly views climate, nature, human rights and conflict as interconnected through food, energy and mining systems, rather than identifying a single dominant climate threat.

The scheme describes these as system-level risks and opportunities because of their importance to the wider economy and their impact on greenhouse gas emissions, nature and human rights.

“It’s hard to identify one specific climate risk,” Taaffe says. “What our analysis has shown is that these three systems are critically important to the functioning of the economy, and that we need to look at the risks in a more interconnected way.”

Ultimately for Taaffe, the test of a net zero strategy is, therefore, not simply whether portfolio emissions fall, but whether investment and stewardship contribute to a transition in the wider economy.