Data crunch: The government-backed workplace provider Nest is testing ways to adopt a 1.5C goal for its Climate Aware Fund, to better reflect the “quickly evolving nature of climate change risk” and its impact on members’ investments.
The global equity fund, launched in 2017 by UBS Asset Management, saw its assets more than double to £1bn at the end of September 2019 from £400m last year.
Since inception, the fund incorporates a forward-looking 2C global warming glide path, giving greater exposure to companies that operate their businesses according to this target.
Having the FTSE Developed Index as a benchmark, the fund applies a positive ‘tilt’ to increase investment in companies identified as combating climate change, and a negative tilt to reduce investment in those firms that are heavy carbon emitters.
Pension schemes have a crucial role to play in giving their members a planet fit to live on and fit for the future
Guy Opperman, pensions minister
Fund targets low carbon emissions
During the past three years, the fund had a 2.4 annual reduction of CO2 emissions. In comparison, the FTSE Developed Index saw its average rate rise by 1.6 per cent over the same period.
According to Nest’s latest Responsible Investment report, published on Wednesday, the auto-enrolment provider is now stress-testing the fund using a 1.5C scenario, after the UN presented a “bleak” outlook, with countries needing to cut carbon emissions fivefold if the world is to avoid such an increase in global warming.
“This more ambitious target means the CAF will tilt more rigorously away from companies generating large carbon emissions, and towards those that are at the forefront of the climate transition or which have very low carbon emissions,” Nest states.
‘Concerning’ investment risk
According to Diandra Soobiah, Nest’s head of responsible investment, the climate change risk to both members and their investments “is stark and, frankly, concerning”.
She says: “In good conscience, we cannot stand by and do nothing – we want to help ensure the world our members retire in is a world they want to live in.
“The least ambitious end of the Paris Agreement was set at 2C. This will still significantly worsen the risk of drought, floods, extreme heat and poverty for hundreds of millions of people. Setting a 1.5C target is a stronger goal that we will push hard to support.”
Guy Opperman, recently reappointed minister for pensions and financial inclusion, notes that “pension schemes have a crucial role to play in giving their members a planet fit to live on and fit for the future”.
He says: “That is why the government has required pension schemes to state how they take account of climate change, and other environmental risks. We are also putting power back into the hands of individuals, giving them the ability to see and decide where their money is going.”
The Department for Work and Pensions introduced new regulations, which came into effect in October, in which schemes are required to publish more detailed statements of investment principles, addressing financially material environmental, social and governance risks, such as climate change.
