LGPS – London Pensions Fund Authority launches net zero action plan

3 November 2022

• Commitment to reduce Fund’s Scope 1 & 2 emissions by 75% by 2030
• Fund commits to maintaining a Paris-aligned portfolio
• LPFA aims to drive real world change by engaging with companies making the largest contribution to the financed emissions across the fund

The London Pensions Fund Authority (LPFA) has today published their Investor Climate Action Plan (ICAP) outlining how the £7.6 billion[1] Fund plans to go net zero and tackle the financial risks posed by climate change. The Fund has set 6 goals covering the portfolio, their assets and the Fund’s operations. The Fund’s immediate attention will be on moving their listed equity holdings towards net zero supported by an extensive engagement campaign. Listed equities represents 50% of the Fund, or around £3.8 billion.

The LPFA’s plan has been developed using the Paris Aligned Investment Initiative (PAII) framework to which the LPFA signed up in September 2021. The PAII is a collaborative investor-led global forum enabling investors to align their portfolios and activities to the goals of the Paris Agreement.

Robert Branagh, LPFA’s CEO 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.”

In their ICAP, the LPFA commits to:

3 Portfolio goals:

• Reducing emissions: By 2030, the LPFA aim to reduce Scope 1 and 2 portfolio level emissions intensity to 13 tCO2e/£m invested. This represents a 75% reduction relative to the portfolio emissions in 2019, which is the baseline.
• Maintaining a portfolio consistent with the Paris Agreement: The LPFA will measure the temperature rise implied by the assets in their portfolio. The LPFA will aim for this implied temperature rise 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: The LPFA will increase their investment in the climate solutions required to meet net zero by 2050 or sooner. The LPFA have not set a goal for the percentage of assets to be invested in climate solutions at this stage because of the lack of available data. The LPFA expect to set a percentage goal for investment in climate solutions during 2023.

2 Asset goals:

• Investing in companies aligned to net zero: The LPFA aim to ensure that by 2025 at least 32% (by value) of their listed equities investments in material sectors meet the criteria to be considered aligning to net zero) as defined by the NZIF. The LPFA aims for this proportion to rise to 55% by 2030 and, by 2040, to ensure that all of the LPFA’s listed equities investments in material sectors meet the criteria to be considered aligned to net zero (as a minimum) as defined by the Net Zero Investment Framework (NZIF).
• Applying pressure to companies to put net zero plans in place: The LPFA will ensure that at least 70% 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. By 2030, the LPFA will ensure that at least 90% of financed emissions in material sectors resulting from their listed equities exposure meet these standards.

1 Operational goal:

• Reducing emissions from the running of the Fund: By 2030, the LPFA aims to reduce the Scope 1 and 2 GHG emissions by 50% per full time employee, relative to GHG emissions in 2022-2023.

Peter Ballard, the LPFA’s Director of Funding and Risk, led on the development of the ICAP with support from the investment consultancy firm Redington and working with LPFA’s delegated asset manager, LPPI.

He commented, “Our plan is about supporting the greening of the planet and the Fund. We want to drive change in the real world so that the economy as a whole achieves net zero emissions. This means that we’ll work closely with our delegated asset manager, LPPI, and collaborate with like-minded investors to make sure that we are pushing companies along their own net zero path. This is new ground for many of us and we’ll be using our website to report on our progress as clearly as we can.”

Source: LGPS - London Pensions Fund Authority