The pension fund operated by Wandsworth and Richmond councils is playing a leading role among London local government pension scheme (LGPS) funds in switching its investments to renewable energy.

The combined pension fund, which is a client of local authority pension pool London CIV, has already invested £40m in these assets but aims to increase this commitment to £140m in the next year, it announced.

Last May the scheme began the process of reducing investment in fossil fuels after embedding climate risk and decarbonisation in its investment policy.

Guy Senior, chair of the joint Wandsworth and Richmond Pension Fund, said: “We came to the conclusion in 2020 that maximising the performance of the fund and supporting the council’s pledge to tackle global warming did not have to be mutually exclusive.

“Switching to environmentally friendly investments has been a gradual process, but our equity portfolio is already over 30% below the carbon footprint for its benchmark.”

He added: “Investing in renewable energy is not just about being green, it will help deliver energy self-sufficiency and provide a good yield to pay our pensions so it is a win-win situation all around.”

He said the scheme is considering various types of renewables including carbon capture and energy storage, noting that if all of the funds were invested in power generation such as hydro, solar, and wind turbines, it could generate up to 10% of London’s total requirements in electricity and do so in a greener capacity.

London CIV announced this week that London council pension funds are in the process of investing over £600m in renewable energy.

Mike O’Donnell, chief executive officer of London CIV, said: “We are delighted Wandsworth and Richmond are investing such a significant amount in renewable energy, which includes our recently launched Renewable Infrastructure Fund.  The rest of the £600m investment has been made up by another nine London Borough Local Government Pension Scheme investors.”

London CIV has committed to achieving net zero greenhouse gas emissions by 2040, becoming the first local authority pension pool to do so.

“By setting an ambitious target it sends a clear signal to all our clients, managers and investee companies about urgently addressing this increasingly material issue,” O’Donnell said. 

DB schemes maintain surplus amid market volatility

The funding status for the 5,000-plus corporate defined benefit (DB) pension schemes in the UK continues to show that schemes are, on average, in a surplus position, despite current market volatility, according to PwC’s Pension Trustee Funding index.

Asset and liability values both fell over February 2022, resulting in a surplus of £40bn (€47.5bn) based on schemes’ own ongoing funding measures, PwC data showed.

PwC’s Adjusted Funding Index shows a £200bn surplus. This incorporates strategic changes available for most pension funds, including a move away from low-yielding Gilt investments to higher-return, income-generating assets, and a different approach for potential life expectancy changes.

Raj Mody, global head of pensions at PwC, said: “Pension schemes generally remain well funded based on their own assessments for funding purposes, despite the volatility and disruption in markets over February.”

He said that many plan sponsors and trustees are now revisiting their journey plans, which include their long-term goals and how they’re going to get there.

“Those who are focused on securing members’ benefits for good might find that they are closer to that goal than they realise. They should be careful not to build up more money than is needed as there have been many situations of schemes being overfunded and value lost in the process of moving to a third party,” he added.

With PwC’s Pension Trustee Funding index showing a sustained period of surplus, well-funded schemes that want to transfer to a third party, such as an insurance company, are close to being able to do so. But other assessments of their position are helpful too. Trustees and sponsors should stay focused on the measures which best align with their scheme-specific strategy, PwC warned.

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