Nest is testing more stringent environmental targets as a way to protect investors from the the risks posed by climate change.
The UK’s biggest master trust, which looks after the pension of 8.5m workers, is looking at ways to support a 1.5C climate goal.
The scheme’s Climate Aware Fund (CAF) gives those invested in its default fund increased exposure to companies which are seeking to adhere to the UN’s Paris Accord agreement to limit global warming to 2C.
But in its latest Responsible Investment Report Nest says it wants to go further and is currently trialing a more ambitious target of 1.5C. It said this followed comments by the UN that the outlook was ‘bleak” with countries needing to cut carbon emissions five-fold if the world is to avoid warming by more than 1.5C.
This report confirms Nest members have already invested more than £1 billion through the CAF, of which more than £200 million (22.4 per cent) has been reallocated into companies positioned to benefit from a low carbon economy. This includes renewable energy companies like Meridian Energy, EDP renewables and SSE.
At the same time more than £200 million has been withdrawn from companies that need to change but are making little progress on adapting for a low carbon future. This includes utility company KEPCO and oil and gas companies Chevron and Exxon Mobil.
Nest’s head of responsible investment Diandra Soobiah says: “Factoring environmental policies into our investment strategy is not only absolutely key to driving better long-term investment results for members, but also contributes to global efforts to tackle climate change.
“The climate change risk to both our members and their investments is stark and, frankly, concerning. In good conscience we cannot stand by and do nothing.
“The Climate Aware Fund is one of our key tools to help drive investment into green technology while simultaneously removing investment from the biggest carbon emitters. It’s been successful but we have to go further, reflecting the quickly evolving nature of climate change risk.”
She adds that one of the key benefits of the Climate Aware Fund is that Nest retains the ability to put pressure on the worst offending companies: the 50 worst carbon emitters in the fund are responsible for 27 per cent of global CO2 emissions.
Soobiah says: “We believe they can do better and will continue to pressure them to improve.”
Nest is also considering ways to evolve the CAF to reward companies involved in the supply chain for providing renewable energy equipment, machinery or technology to renewable energy generation companies. These companies can be good investment opportunities for investors and are crucial in finding solutions to reducing carbon emissions.
Nest says that since its launch in 2017, the CAF has seen carbon dioxide emissions from the companies it invests in fall by 2.4 per cent on average a year. In contrast the FTSE Developed Index (a list of some of the largest public companies from around the world) has increased its average annual CO2 emissions during the same period by 1.6 per cent.
The fund also has 40 per cent more exposure to renewable power generation than this FTSE Developed benchmark.
Nest also announced it is the latest signatory to Climate Action 100+, adding to the 370 investors already signed up representing more than $35 trillion in assets under management. This initiative puts pressure on the world’s largest corporate greenhouse gas emitters to take necessary action on climate change.
