RPMI Railpen, which manages some £32bn (€37.2bn) of assets on behalf of the UK’s railway pension schemes, has presented a corporate engagement-focussed plan for delivering a net-zero portfolio by 2050 or sooner.

It is aiming to reduce financed emissions by 50% by 2030 compared with a 2020 baseline, and by 25-30% by 2025. These targets relate to Scope 1 and 2 emissions.

The current plan is based on the net zero investment framework developed by the Institutional Investors Group for Climate Change (IIGCC), and covers Railpen’s investments in listed equities, corporate fixed income, and sovereign bonds.

This represents 65% of the portfolio. Railpen said it aims to include its real estate, private equity and infrastructure holdings over 2021/22 as IIGCC methodologies for these asset classes develop. It is at a “pre-commitment analysis” stage for real estate.

“We are committed to being a leading force in tackling climate change, the single biggest financial and global hazard of our time,” said Michael Marshall, head of sustainable ownership at Railpen.

“We recognise the central role asset owners can play in driving change. This is why we have carefully considered, announced and shared a clear, achievable roadmap to net zero by 2050.”


The cornerstone of Railpen’s current net-zero plan is engaging businesses in sectors classified as material, such as metals and mining, airlines, and construction materials.

Railpen has determined that there are 44 companies in scope of its engagement targets. Of these, 28 are not covered by Climate Action 100+ and will require direct engagement either by Railpen or by external investment managers. Some of these companies are only in Railpen’s corporate fixed-income portfolio.

“From a systems perspective, we believe it is more important to engage companies who influence the demand for energy”


“From a systems perspective, we believe it is more important to engage companies who influence the demand for energy, rather than companies involved in the supply of energy,” said Railpen.

In line with the IIGCC net-zero investment framework, Railpen will consider selective divestment from companies either where the magnitude of climate risk negatively impacts its view of expected risk-adjusted return, or as the final escalation in an unsuccessful net zero engagement.

For index-tracking equities, Railpen said it would keep the possibility of investing in customised index products under review.

The other major prong of Railpen’s net-zero plan is investment in climate solutions. It said it expected to increase its allocation to climate solutions “where this is promotive of both our climate and fiduciary aims”.

For data quality and reliability reasons, it has yet to define a 2020 baseline for climate solutions in listed assets. It also said it needed to further understand the trade-offs between decarbonisation targets and climate solutions targets.

Railpen is one of a number of institutional investors that have backed US sustainable infrastructure firm Generate Capital to raise $2bn (€1.7bn), according to an announcement from the firm this week.

In other net-zero news, UK campaign group Make My Money Matter has today written to a raft of major defined benefit pension funds to push them to set ambitious net-zero targets. Last month it did the same for defined contribution master trusts.

Financial impact analysis

The launch of Railpen’s net-zero plan comes after several months of discussions and internal portfolio analysis, and reviews of potential net-zero commitment targets and the roadmap.

Once the broad targets and trajectories were determined, Ortec Finance was commissioned for a high level analysis of the financial impact of these on Railpen’s portfolio.

Chandra Gopinathan, senior investment manager at Railpen, told IPE that Ortec Finance’s analysis was mainly focused on scenarios where Railpen may be forced to make divestments in 2024 and 2029 to meet net-zero targets, due to engagement failures and slower than expected decarbonisation, under very weak market conditions.

The scenarios assessed portfolio impact of forced divestments in multiple ways, one based on an immediate point-in-time loss.

Assuming no transition management or futures hedging on divestments, Ortec calculated the impact to be between 45–55bps of the portfolio, which Railpen said it considered low, given the scenario.

The other assessment was based on expected returns over a longer timeframe with forced divestments and a switch to a representative low carbon benchmark. The portfolio impact was minimal across the scenarios considered.

“Our internal research and analysis indicated that the impact of the net zero trajectory and targeted decarbonisation was unlikely to be that financially material on the portfolio,” said Gopinathan.

“Ortec Finance’s independent analysis and results indicated that the portfolio impact would be fairly minimal based on the scenarios modelled.”

Railpen said it would conduct further financial impact analysis before adding other asset classes to its net-zero plan.

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