People’s Pension, the £40bn (€46bn) UK commercial master trust pension scheme, has abandoned its 1.5°C-aligned portfolio target in favour of an approach that supports a bottom-up approach “emphasising practical, evidence-based action”, it announced today.
It has retained an ambition aligned with the Paris Agreement, but said that target-setting would be considered on a case-by-case basis, informed by its new bottom-up approach.
The master trust said the world was not on track to limit warming to 1.5°C above pre-industrial levels, with policy action having stalled, adding that the business case for a low carbon transition had been “variable” across regions and sectors.
“This means People’s Pension has moved away from a singular, top-down ‘1.5°C aligned portfolio’ (limited to no overshoot) target as an investment constraint, emphasising practical, evidence‑based action rather than theoretical scenarios or unrealistic expectations of portfolio decarbonisation,” it said.
“People’s Pension has found that maintaining portfolio targets that are inconsistent with the real world could significantly increase levels of risk with little real benefit.”
Climate scientists have said that in order for the 1.5°C Paris Agreement goal to be reached, the global economy needs to be “net zero” by the year 2050.
An expert survey carried out for the Inevitable Policy Response recently uncovered the view that the global economy will reach net zero this century, consistent with capping warming at around 2°C.
Asset owners have been grappling with the implications of the outlook for the 1.5°C goal for their net-zero commitments, but there has been a reluctance to step back from a 2050 target.
A spokesperson for People’s Pension told IPE that it had heard from many industry peers that they were aware of the evidence that the world is not on track to limit warming to 1.5°C and the need to adapt accordingly.
“We hope that by being open about the uncertainty and complexity, and our approach to it, we can make a constructive contribution to the conversation,” he said.
Taking on board evidence
People’s Pension said it came to its new position after taking into account views from leading academics as well as a literature review – “spanning both supportive and challenging opinions” – that was carried out by sustainable investment specialists Canbury.
It said addressing climate risks and opportunities would remain a priority for the pension fund, but based on valuation discipline and risk control rather than positioning that placed too strong an emphasis on climate policy materialising.
The master trust noted that it would investigate the benefits of an investment strategy of favouring transition leaders with carbon-intensive sectors “where fundamentals, valuations and evidence support its investment objectives”.
Dan Mikulskis, chief investment officer of People’s Partnership, provider of People’s Pension, said the industry’s understanding of how to effectively protect and grow member savings had materially changed since the master trust set its original portfolio-target in 2019, and that the pension fund had a fiduciary responsibility to evolve and adapt to those developments.
“Additionally, there is seven years of evidence on market-wide decarbonisation and policy change that we believe needs to be adapted to. We believe the retention of a Paris-aligned ambition is important, but it must be rooted in bottom-up realities as to the role that investors can play in achieving it to ensure better outcomes for our members”.
Mark Condron, chair of the People’s Pension trustee board, said the pension fund continued to believe that climate change was a significant long-term financial risk, but “misaligned, or overly ambitious climate strategies can also harm our members if they rely on optimistic assumptions about the speed or nature of transition”.
“Our updated climate approach makes this explicit, and we believe being robustly transparent about this, both to our members and the wider market, is critical. By grounding our approach in real-world evidence, we can back a credible transition while safeguarding the retirement outcomes our members rely on.”
In 2024, People’s Pension shifted the developed markets equities allocation in its main investment fund to a strategy based on the EU’s Climate Transition Benchmark label. This and all other mandates are the subject of an in-depth review, given its new positioning.
It said systems stewardship remained at the core of its strategy, with a focus on industry and policy engagement.
