The Church of England Pensions Board (CEPB) has stepped down from co-leading engagement with Shell for Climate Action 100+ as part of a shift in focus to industry sectors that demand energy from oil and gas companies.

This has seen the £3.5bn (€4.1bn) pension fund, an active responsible investor, begin co-leading engagement with Europe’s largest car manufacturers. It has already filed shareholder resolutions at VW – rejected by the automaker – and said it was challenging the company on its approach to corporate climate lobbying.

The pension fund said the shift in climate engagement focus reflected a change it believed would be essential in the second phase of Climate Action 100+.

“If the demand for energy doesn’t change, those companies that are supplying it won’t change,” said Adam Matthews, chief responsible investment officer at CEPB.

“We have developed an exacting global net zero standard for the oil and gas sector, which companies that wish to retain their social license can implement. Ultimately those same companies’ ability to deliver on their targets will largely be shaped by a change in demand for oil and gas from sectors like autos, aviation and shipping.”

He added: “If you change demand you change supply and that is why as a fund we will be refocusing our engagement efforts on those demand sectors.”

CEPB has said it will divest from Shell if it does not take further steps on absolute emissions targets, and in evidencing alignment of capital expenditure in accordance with the Net Zero Company Benchmark assessment for CA100+.

At Shell’s AGM on 24 May, shareholders will vote on two climate-related resolutions, one tabled by the company on progress against its energy transition strategy and another requisitioned by a group of shareholders calling for tougher emission reduction targets.

Net-zero reporting highlights climate measure limits

Publishing its Stewardship Report, CEPB yesterday also revealed that it is currently 10 years ahead of target to meet its goal of net-zero financed emissions by 2050.

In 2021, the weighted average carbon intensity of its public equity portfolio was 74 tonnes of CO2 per million pounds of revenue, which is well ahead of its 7% year-on-year target trajectory and close to its net-zero aligned target for 2032.

“This shows one of the limits of single climate measures, and the importance of investing for the transition, alongside broad portfolio level targets”

However, CEPB said the carbon intensity may increase in due course, “as there will be a period during which higher emitting companies publish credible plans to decarbonise (and we un-restrict or adjust our investment weightings), but they are yet to implement fully those plans”.

“In this scenario,” said CEPB, “a portfolio would have strong transition credentials, but face a temporary rise in carbon intensity. This shows one of the limits of single climate measures, and the importance of investing for the transition, alongside broad portfolio level targets.”

The reduction in weighted carbon intensity is a result of CEPB significantly reducing or excluding companies that are not aligning to the energy transition. This led to holdings in oil and gas companies falling to 0.28% of the fund.

CEPB said the most significant contribution to the progress to date has been the creation of the FTSE TPI Climate Transition Index, in which the pension fund invests its passive portfolio, and application of the same rationale within the Board’s active investments.

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