The Environment Agency Pension Fund (EAPF), part of the UK’s local government pension scheme, is aiming to halve the carbon emissions associated with its investments by 2030, and reduce them to net-zero by 2045.
The plan is to reduce emissions in listed equities, EAPF’s largest asset class, by 87% by 2025 and by 95% by 2030, compared with a 2010 baseline.
According to research carried out by Mercer for EAPF, the decarbonisation in its equity portfolio from 2010-2020 puts the pension fund around four to five years ahead of a decarbonisation pathway consistent with a 1.5°C scenario.
Marion Maloney, head of responsible investment and governance at the fund, said the value of its listed equity portfolio rose by 94% over the same period that the carbon emissions associated with the portfolio fell by 74%. This is based on Scope 1 and 2 emissions.
The pension fund said that whatever the portfolio, it wants to have a focus on sustainability as much as possible and to be “constantly pushing the boundaries of integrating climate change solutions”.
“We want to move to Paris-Aligned benchmarks by 2030, where available,” it added, referring to one of the new EU climate benchmark categories.
Climate change covenants
This year the EAPF is moving into multi-asset credit for the first time, and it said it welcomed the emergence of green bonds to help it fund the low carbon transition and build resilience.
The pension fund, which has some £4bn (€4.6bn) in assets under management and is part of the Brunel Pension Partnership, indicated it would only provide new debt finance or capital to companies that are not aligned with the Paris Agreement if there are covenants in place to deal with the likelihood of these companies posing higher financial risks in the long-term.
As part of its new climate change policy, EAPF is aiming to have at least one-third of its investments across all of the portfolios in sustainable assets. By 2025, 17% of its investments across the portfolio would directly tackle climate change by helping to reduce emissions or build resilience, it said.
It said it would seek to align with the EU taxonomy “once the flow of information and data becomes readily available following the taxonomy coming into force”.
At that point it would review its targets to ensure “that our ambitious approach remains”.
EAPF is a leader in responsible investment. In 2015, before the Paris Agreement was signed, it drew up a policy to tackle the financial risks from climate change, with the aim then being that the pension fund’s investment approach was compatible with keeping the global average temperature increase to below 2°C, compared with pre-industrial levels.
The pension fund said the net-zero framework developed under the aegis of the Institutional Investors Group on Climate Change informed its approach.
As of December 2020, EAPF’s funding level was 107%.
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