The Fund’s net zero ambition
What does net zero mean?
Net-zero means reducing the amount of greenhouse gases (like carbon dioxide) that we put into the atmosphere (through emissions), which cause climate change, and increasing how much we take out. When we take out as much as we put in, the overall result is ‘net-zero’. This is what we’re aiming for with the companies we invest in.
Many greenhouse gas emissions are created by human activities such as heating homes and travelling, as well as the way society produces and consumes everyday items like clothes, food and technology. So, to reach net zero, the world needs to change the way it produces and consumes. This is a huge challenge, but it is now the goal for many governments and companies around the world. As well as reducing emissions, the world also needs to actively remove greenhouse gases from the atmosphere.
What does net zero mean to a pension fund?
Pension funds don’t manufacture or transport products. As such, their ‘direct’ carbon emissions are relatively low – those produced by working in an office or commuting to work for example. However, pension funds invest in companies that do manufacture and transport products (among other things) and so they do have ‘indirect’ emissions – emissions produced by the companies they invest in.
As investors, pension funds can monitor the carbon emissions of the companies they invest in and influence those companies to reduce their carbon emissions and/or do more to remove greenhouse gases from the atmosphere by engaging with them.
The Fund’s net zero ambition
Our net zero ambition
Our net zero ambition is to reach net zero portfolio emissions by 2050.
To help us achieve this ambition we are targeting (as an interim target) that by 2027 60% of the Fund’s financed emissions will be from companies assessed as having a scientifically verified Paris-Aligned temperature pathway, or for high-impact companies that are flagged as not having a verified Paris-aligned pathway, they are subject to structured engagement. This target applies to public equities and public credit assets.
The target will be reviewed each year as part of the Fund’s TCFD framework by the Trustee Board, and we’ll report on progress as part of our yearly TCFD disclosures.
What does our net zero ambition mean?
Let’s break this down to understand what each part of the net-zero ambition means.
Our overall ambition
Our overall ambition is to reach net zero portfolio emissions by 2050.
This means that we have an ambition to make sure the emissions from investments in our investment portfolio reach net zero by 2050. At the moment, this target relates to companies whose shares we hold (equities) and companies whose bonds we hold (public credit). Over time the ambition may expand to include other asset types.
Our secondary target
We have a secondary target that by 2027, 60% of the Fund’s financed emissions are in companies assessed as either:
1: Having a verified Paris-Aligned temperature pathway;
This means that the Fund is investing in companies that have a stated, and verified, target to reduce their greenhouse gas emissions to help limit the “global temperature increase to 2 degrees Celsius while pursuing efforts to limit the increase even further to 1.5 degrees”. This is the Paris aligned temperature pathway.
2: For high impact companies that are flagged as not having a Paris-Aligned pathway, ensuring these companies are subject to structured engagement.
This means that for companies that do not have a Paris-Aligned pathway we will ensure that our investment managers engage with those companies in a structured way. We also ask our investment managers to report on that engagement which we monitor each year.
Where are we now?
You can find details of the Fund’s approach to manage and mitigate climate-relayed risks and opportunities, as well as information about the Fund’s measures and targets on climate emissions in the Task Force on Climate-related Financial Disclosure (TCFD) report on our forms and documents page.
For the DB section, our baseline position shows that for the applicable assets, 20% of the financed emissions are in companies with a verified Paris-aligned temperature pathway.
For the DC Section, our baseline position shows that for applicable assets, 31% of the financed emissions are in companies with a verified Paris-aligned temperature pathway.
High impact companies are currently subject to structured engagement and will be reported on each year.