London Pensions Fund Authority sets net zero targets

The Local Government Pension Scheme fund published its Investors Climate Action Plan on November 2, developed using the Paris Aligned Investment Initiative framework, and outlining six goals covering its portfolio.

The scheme plans to start by moving its listed equity holdings – which represent 50 per cent of the fund’s investments – towards net zero “supported by an extensive engagement campaign”.

Two of the plan’s goals are directly related to this asset class, since the LPFA aims to have at least 32 per cent – by value – of its listed equities investments in material sectors meet the criteria to be considered aligning to net zero by 2035.

This proportion is expected to rise to 55 per cent by 2030 and to all listed equity investments by 2040, the LPFA stated.

The LGPS scheme will also apply pressure to companies to put net zero plans in place, ensuring “that at least 70 per cent of financed emissions in material sectors resulting from their listed equities exposure are either assessed as net zero, aligned with a net zero pathway, or the subject of direct or collective engagement and stewardship actions”.

This percentage is expected to rise to at least 90 per cent of financed emissions by 2030, it added.

The local authority scheme is also committing to three portfolio goals, starting with a reduction of its scope 1 and 2 portfolio level emissions intensity by 75 per cent by 2030, when compared with its 2019 baseline.

The LPFA will also measure the temperature rise implied by the assets in its portfolio, aiming for this increase to be consistent with the Paris Agreement to keep global temperature rises well below 2°C by the end of the century.

Investing in assets that help the global economy go net zero by 2050 or sooner is another objective for the scheme, which has not set a goal for the percentage of assets to be invested in climate solutions at this stage due to the lack of available data. It expects to set this target during 2023.

The plan also sets an operational goal for the scheme, of reducing the scope 1 and 2 greenhouse gas emissions by 50 per cent per full-time employee of the pension fund, relative to its emissions in 2022-23.

LPFA chief executive Robert Branagh said: “Climate change poses a risk to society, businesses, our assets, and ultimately, our ability to pay pensions.

“It is an issue of significant concern for our members and wider stakeholders but the transition to a net zero global economy also presents us with sustainable investment opportunities.

“I’m proud of the progress that the LPFA has made in setting clear targets and publishing a realistic, science-based net zero plan. However, we know that there is more that we need to do and we will be announcing more details on areas like climate solutions in due course.”