Pension schemes need to ensure that attempts to decarbonise portfolios result in reduced carbon emissions in the real economy, according to Danielle Boyd, senior programme manager of Institutional Investors Group on Climate Change (IIGCC).
Addressing delegates attending the Corporate Adviser summit, Boyd set out the various framework provided by the IIGCC to help investors and pension schemes transition towards a net zero economy.
She says there were two key principles for schemes to follow in developing net zero strategies. “They need look at how their action reduces carbon emissions in the real economy and also include investments into climate solutions be it renewable energy, low carbon buildings and so on.”
Boyd gave the example of a pension fund divesting from high carbon assets, such as oil and gas companies. “A scheme could sell BP and Shell and buy Facebook and Microsoft shares instead. This would certainly improve the carbon footprint of their portfolio but it would not have any impact on real world emissions.”
She set out options for schemes to report and reduce the carbon emissions from their portfolio. Crucial to this, she said, was understand where companies currently invested in were on their journey towards net zero and monitoring improvements.
“Setting time-bound milestones to meet different criteria can help reduce overall emissions,” she says, “with divestment as an option for those that are not engaging with this process.”
Boyd said individual holdings should be placed in five categories: ‘not aligned to a net zero 2050 goal’, ‘committed to aligning towards net zero 2050 goal,’ ‘aligned towards a 2050 net zero goal’, ‘aligned to net zero pathway’, ‘achieving net zero status’.
She says many companies will currently be in the first category but schemes should be look to improve this metric over time, with short term goals to reduce overall emissions from the portfolio.
Boyd told delegates that government action like a carbon tax could help improve this process and should help improve the reliability of many ESG metrics, which can be inconsistent at present.
She also warned schemes that failure to act on these issues could lead to legal action, citing the example of any Australian case where a member, Mark McVeigh brought action against his super-annuation fund for failing to factor climate change into its investment strategy.
She also added that while much of the focus on stranded assets has been in relation to fossil fuels and oil reserves this could also be an issue to affect the agriculture and gas pipelines industries in future.
