Pension practitioners call for more policy direction on net zero targets

Speaking at the Net Zero Pension Summit event at the conference, Faith Ward, chief responsible investment officer at the £28bn Brunel Pension Partnership — which handles assets of 10 partner funds with an aggregate size of circa £40bn — said much more needs to be done to help pension schemes achieve their net zero investment goals.

This includes stronger collaboration within the investment industry in order to encourage clear and decisive action in the near future.

“Pension funds do not operate in a vacuum — maintaining momentum will be vital,” Ward said.

We have to create an environment where the companies that provide the solutions do better than those that create the problems

Barry O’Dwyer, Royal London

“Yes, we need policymakers to step up and deliver on what they have promised. Yes, we need financial leaders to do the same. And yes, we don’t actually have all the answers, but we do have many of the tools to make progress. There are no excuses with net zero.” 

Echoing this sentiment, Barry O’Dwyer, chief executive of Royal London, also recognised the importance of collaboration and said numerous stakeholders needed to act to create an economy where climate change targets can be met, but not at the cost of pension funds’ fiduciary duty.

“This is going to require a collaboration we probably haven’t seen before between government, regulators and the industry, because we have to create the proper incentives to make sure people do the right thing,” he said.

“We have to create an environment where the companies that provide the solutions do better than those that create the problems.”

His fellow panellist, David Russell, head of responsible investment at the circa £80.6bn Universities Superannuation Scheme, agreed and said this approach required an holistic view.

“It’s not just about selling everything,” said Russell, who used the example of the Climate Action 100+ as an initiative that encourages engagement between polluters and asset holders. 

“That means we need to recognise for some sectors it’s really hard to transition. If you are in cement, steel, air travel, etc, the technology is not there yet — we have to think about system change,” he added.

This was the approach being taken by many of the organisations featured in the session.

Actional toolkit for asset owners

Ward, who is also chair of the Institutional Investors Group on Climate Change, explained to delegates how the IIGCC had been working on a net zero investor framework.

This has been designed to provide an actional toolkit of practical tips for asset owners aiming to meet net zero targets. A core part of this approach is engagement.

“We will stay invested in companies, but we are very clear about defining time-bound solutions,” said Ward, and explained that Shell was an investee that had told the global body of plans to continue oil exploration projects until 2025.

“We said that really wasn’t appropriate and made that very clear to them, and that it was not a palatable part of their forward strategy,” she added.

Work towards meeting net zero investment goals is ongoing at both the USS and Royal London. The latter began internal plans with member/owners of the mutual to identify net zero targets and priorities at the start of 2020.

This is something O’Dwyer said he made a priority after assuming his role in late 2019. 

The USS has also been proactive, encouraging its analysts and asset allocation teams to link long-term, net zero commitments to financial performance of the scheme in the meantime.

Ward warned delegates that trustees who are nervous about embarking on net zero initiatives would not be able to avoid challenging periods.

“The scale of what we are trying to achieve is phenomenal. We are talking about a societal and economic shift unlike anything we have experienced,” she said. 

“It will be bumpy, messy and we will make mistakes. People have to realise we have to get started, because the slower we are to start the messier it will be to make progress.”