DB Section Shifts Gears: From Equities to Fixed Income for Climate Resilience
The ABF Pension Scheme’s Defined Benefit (DB) Section is undergoing a significant strategic shift, transitioning to a low-dependency portfolio. This move, initiated in September 2023 and nearing completion by April 5, 2025, involves a reduction in equity allocation in favor of fixed income assets. The rationale behind this change is to enhance resilience against climate risk, as the low-dependency portfolio is expected to have lower exposure to asset classes with higher climate risk. The 2023 climate scenario analysis, which already reflects this transition, will not be updated for the current reporting period, but a new analysis incorporating the revised Low-Dependency Target Allocation will be conducted for the 2026 report. Specifically, the Trustee plans to sell down its UK Property allocation over 2025 and run-off the Private Debt portfolio. This strategic re-alignment is driven by the Scheme’s strong funding position, which has also enabled a contribution abatement with the Sponsor since October 2023. (Source: CLIMATE CHANGE GOVERNANCE AND REPORTING IN LINE WITH THE RECOMMENDATIONS OF THE TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD), page 10, 15)
DC Section Expands ‘Popular Arrangements’ and Embraces Private Credit
The Defined Contribution (DC) Section has seen an increase in its ‘popular arrangements,’ with the AllianceBernstein TDF 2038-2040, TDF 2041-43, TDF 2044-2046, and TDF 2047-2049 now meeting the criteria of having over £100m invested. This expands the number of popular arrangements from one in 2023 to five in 2024. Furthermore, in July 2024, an allocation to private credit was introduced within the Target Date Funds (TDFs). This new allocation was partially funded by a reduction in other underlying credit mandates, government bonds, and equities. The rationale for this change is not explicitly stated as a climate-related decision, but the document notes that for younger members (25+ years from retirement), this shift is expected to result in a lower climate impact, particularly in a Failed Transition scenario. The quantitative scenario analysis for the DC section will be re-run in 2025, and the results will be included in the 2026 report. (Source: CLIMATE CHANGE GOVERNANCE AND REPORTING IN LINE WITH THE RECOMMENDATIONS OF THE TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD), page 11, 12, 20)
DB Equity Portfolio Exceeds Carbon Reduction Target Ahead of Schedule
For the fiscal year ending April 5, 2025, the DB Equity portfolio has achieved a 56% reduction in greenhouse gas emissions (Scope 1 and 2) against its 2030 target of 40% reduction, measured from a September 30, 2021 baseline. This target was met in 2023 and has been maintained in 2024. This significant reduction has been largely driven by a substantial decrease in the carbon footprint of the Liontrust, Calamos, and Artemis portfolios since the 2021 baseline. Artemis, in particular, saw a 55% reduction in total GHG emissions, attributed to changes in sector exposures, moving away from carbon-intensive sectors like Oil and Gas towards technology. The Trustee intends to maintain the 40% reduction target for now, seeking consistent long-term reductions before re-evaluating, acknowledging that a fall in carbon footprint could also be influenced by an increase in the enterprise value of underlying companies. (Source: CLIMATE CHANGE GOVERNANCE AND REPORTING IN LINE WITH THE RECOMMENDATIONS OF THE TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD), page 4, 25, 40, 41)
DC Target Date Funds Outpace Carbon Reduction Goals
The DC Target Date Funds (TDFs) have significantly exceeded their greenhouse gas emissions (Scope 1 and 2) reduction target, achieving a 43% reduction by September 30, 2024, against a 2030 target of 20% reduction from a September 30, 2021 baseline. This achievement is attributed to the implementation of various positive screens (e.g., carbon tilts) and negative screens (e.g., coal) across allocations by AllianceBernstein, as well as the broader decarbonization of the global equity universe. AllianceBernstein notes that maintaining this progress is not guaranteed due to the passive methodologies used and the influence of company alignment in carbon emissions and market index weights. (Source: CLIMATE CHANGE GOVERNANCE AND REPORTING IN LINE WITH THE RECOMMENDATIONS OF THE TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD), page 4, 33, 40, 41)
Private Debt Managers Under Scrutiny for Improved Climate Data Reporting
The Trustee is actively engaging with its private debt managers to improve the consistency and level of climate data reporting. For the fiscal year ending April 5, 2025, metrics from private debt managers have been reported separately in Appendix 3 due to inconsistencies and varying data quality. While some managers like Alcentra and Beach Point provided data, others like Arcmont, Ares, HIG, and Ninety One either had metrics unavailable or provided data for the entire fund rather than the Scheme’s specific portion. The Trustee aims to include private market data within the main reporting in the coming years, contingent on improved manager data availability and compliance with regulatory requirements. (Source: CLIMATE CHANGE GOVERNANCE AND REPORTING IN LINE WITH THE RECOMMENDATIONS OF THE TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD), page 4, 24, 31, 42, 49)
Insight’s Sovereign Bond Emissions Rise with Gilt Exposure, Methodology Updated
For the fiscal year ending April 5, 2025, Insight’s total GHG Scope 1 emissions for its UK Government Bond mandate increased by 27%. This rise is primarily due to an increase in gilt exposure within the portfolio, from £1,125m to £1,653m, despite an 8% decrease in total UK GHG Emissions over the same period. Insight updated its calculation methodology in 2023 to align with PCAF guidance, leading to a restatement of 2023 metrics for accurate year-on-year comparison. Insight is currently unable to report on Consumption emissions due to a significant 3 to 4 year data lag, a point on which the Trustee will continue to engage. (Source: CLIMATE CHANGE GOVERNANCE AND REPORTING IN LINE WITH THE RECOMMENDATIONS OF THE TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD), page 26, 27, 55)
Calamos and Liontrust See Carbon Footprint Increase Amidst Sector Shifts
For the fiscal year ending April 5, 2025, Calamos and Liontrust experienced an increase in their Scope 1&2 carbon footprint. Liontrust’s increase was predominantly driven by the addition of ‘Solvay,’ a chemicals industry company, into its portfolio, an inherently energy-intensive sector. Calamos’s increase was attributed to an increased allocation to the Utilities sector, which made up 4.8% of the portfolio by September 30, 2024, compared to no exposure the previous year. Companies like ‘The Southern Company,’ ‘Duke Energy,’ and ‘NextEra Energy’ were significant contributors to this rise. (Source: CLIMATE CHANGE GOVERNANCE AND REPORTING IN LINE WITH THE RECOMMENDATIONS OF THE TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD), page 25, 26, 29)
DB Section’s Implied Temperature Rise Remains Above Paris Agreement Goals
For the fiscal year ending April 5, 2025, the Implied Temperature Rise (ITR) for the DB Section’s managers ranges between 2.2°C and 2.8°C. None of the DB Section’s ITR scores are currently consistent with a 1.5°C or 2°C target, with the exception of Insight. Notably, CQS and Veritas saw the largest increases in ITR, both rising by 0.8°C. Veritas attributed this to adjustments made by MSCI ESG Research LLC to individual company ITRs, impacting companies like ‘Airbus SE’ and ‘Canadian Pacifique Kansas City Limited.’ CQS confirmed its rise was driven by asset allocation and portfolio turnover, specifically an increase in high yield exposure. The Trustee acknowledges the variability in ITR methodologies and expects greater consensus over time. (Source: CLIMATE CHANGE GOVERNANCE AND REPORTING IN LINE WITH THE RECOMMENDATIONS OF THE TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD), page 30)
DC Section’s Implied Temperature Rise Rises, Reflecting Broader Market Trend
For the fiscal year ending April 5, 2025, the Implied Temperature Rise (ITR) across all DC Target Date Funds (TDFs) increased from the previous year. AllianceBernstein confirmed this aligns with a broader market trend, as observed in the MSCI ACWI global equity market benchmark, which saw its ITR increase from 2.14°C to 2.46°C. The TDFs on aggregate experienced a similar increase, from 2.05°C to 2.30°C. (Source: CLIMATE CHANGE GOVERNANCE AND REPORTING IN LINE WITH THE RECOMMENDATIONS OF THE TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD), page 33)
Trustee to Re-evaluate Climate Targets and Time Horizons for 2026 Report
In light of updated climate scenario analysis and the addition of new credit managers within the DB Section, the Trustee plans to re-review the appropriateness of its climate targets and time horizons. This re-evaluation will assess whether the current targets remain suitable and will refresh them as necessary. This action is scheduled to take place over the course of the year to April 5, 2026. (Source: CLIMATE CHANGE GOVERNANCE AND REPORTING IN LINE WITH THE RECOMMENDATIONS OF THE TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD), page 43)
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