Strategic Rebalancing Towards De-Risking and Buyout Readiness
Over the next 5 years the Leonardo Electronics Pension Scheme plans to de-risk its investment strategy by reducing its allocation to Growth assets and increasing allocations to Buy & Maintain (B&M) credit and gilts. This strategic shift is driven by the Scheme’s objective to achieve a funding position suitable for a potential buyout with an insurer within the next 5-10 years, with a full buyout potentially occurring before 2030. The expected de-risking has been incorporated into the climate scenario models. (Page 10, 13, Leonardo Electronics Pension Scheme Climate-related disclosures 2025 TCFD report)
Diversification with Introduction of Securitised Assets
The revised allocation reduces Growth Assets from 30% to 22% and increases Buy & Maintain Credit from 10% to 15.5%. Securitised Credit Assets are newly added at 5%. Active Structured Equity slightly decreases from 15% to 14%, while Liability Hedging remains broadly unchanged (45% to 43.5%). (Page 9/9, Leonardo Electronics Pension Scheme Climate-related disclosures 2025/2024 TCFD report)
Fiduciary Manager’s Enhanced Role in Climate Risk Management
The Trustee continues to delegate day-to-day investment decisions, including the identification and management of climate-related risks and opportunities (CRRO), to its Fiduciary Manager, Schroders Solutions. Schroders Solutions incorporates a climate risk screen within the Scheme’s core equity and return-seeking credit portfolios to reduce exposure to high climate risks and increase exposure to climate opportunities. The Fiduciary Manager also rates underlying mandates annually on ESG and climate integration, prioritizing engagement with lower-scoring managers. Since January 2024, the voting of the equity solution within the BNYM fund has been managed by the FM, aligning with the FM’s Engagement Blueprint and voting policy. (Page 9, 6, Leonardo Electronics Pension Scheme Climate-related disclosures 2025 TCFD report)
Exploration of Longevity Risk Mitigation and Future Risk Settlement Options
The Scheme is currently exposed to longevity risk as it does not hedge this risk for its non-insured pensioners. The Trustee is actively monitoring opportunities to mitigate longevity risk and is assessing options for future risk settlement, which could include a full buyout of liabilities with an insurer before 2030. (Page 9-10, Leonardo Electronics Pension Scheme Climate-related disclosures 2025 TCFD report)
Continuous Review of Investment Advisor Credentials and Performance
The Trustee conducts an annual review of its investment advisor, Schroders Solutions, to ensure adequate support across all relevant tasks, including identifying, understanding, managing, and monitoring climate-related risks and opportunities. This includes challenging outputs, reviewing ESG policies, and assessing services against objectives that specify the integration of ESG risks and stewardship. (Page 6, Leonardo Electronics Pension Scheme Climate-related disclosures 2025 TCFD report)
Engagement with Core Credit Manager for Climate Transition Mandate
The Fiduciary Manager engaged with the core credit manager for the portfolio to transition to a climate transition mandate. This mandate will include an explicit net-zero target and enhanced climate engagement requirements. The manager will also provide enhanced details on the FM’s watchlist in regular reporting, specifically for issuers with poor ESG credentials. (Page 17, Leonardo Electronics Pension Scheme Climate-related disclosures 2025 TCFD report)
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