The Michelin Pension and Life Assurance Plan (DB Section) recently published its Climate Change Report for the Plan Year to 31 March 2025. This report details the Trustee’s ongoing efforts in identifying, assessing, and managing climate-related risks and opportunities, particularly in light of a significant strategic shift.
Strategic Shift: Majority of Liabilities Insured
During the Plan year, specifically in September 2024, the Trustee contracted with Aviva, a bulk annuity policy provider. This agreement transfers responsibility for paying pension benefits for over 95% of the DB Section’s liabilities to Aviva. This change has led to updates in the Trustee’s framework for managing climate-related risks and opportunities. The buy-in was largely funded by the sale of the Plan’s LDI and corporate bond mandates. The Plan is now exposed to insurer counterparty risk rather than credit risk from corporate bonds, and the buy-in policy hedges longevity risk, which was previously unhedged. (Michelin Pension and Life Assurance Plan Climate Change Report (DB Section), Plan Year to 31 March 2025, page 3, 10, 12)
Allocation Changes Reflect De-risking Strategy
For the fiscal year ending March 31, 2025, the Plan disinvested from its corporate bond holdings. This action was a direct consequence of the full buy-in with Aviva, as the corporate bond mandates were sold to fund a large proportion of the buy-in. The Plan no longer holds any corporate bonds. This change also rendered the previous climate target, based on corporate bond investments, inapplicable. (Michelin Pension and Life Assurance Plan Climate Change Report (DB Section), Plan Year to 31 March 2025, page 4, 10)
New Climate Target Focuses on Data Quality
Following the completion of the full buy-in, the Trustee set a new climate-related target. The new target is to achieve at least 50% “reported” and 0% “not available” Scope 1 and 2 greenhouse gas emissions data by 2028, as a percentage of total assets excluding LDI and cash, with the balance being “estimated” data. This target replaces a previous one based on portfolio alignment within corporate bond investments, which are no longer held. The rationale for this new target is to improve data quality, particularly for the illiquid funds that constitute the majority of the Plan’s remaining assets outside the buy-in policy, enabling a better understanding of the Plan’s environmental impact and informing future actions. As of December 31, 2024, the data quality metric stood at 39% reported, 32% estimated, and 29% unavailable. (Michelin Pension and Life Assurance Plan Climate Change Report (DB Section), Plan Year to 31 March 2025, page 4, 23, 24)
Manager Engagement on Climate Capabilities
In February 2025, the Trustee reviewed the climate approaches of its investment managers, utilizing LCP’s 2024 Responsible Investment Survey. The assessment covered areas such as ESG integration, climate approaches including net zero, engagement with companies, policy advocacy, systemic stewardship, and voting. While some managers, such as Legal & General, demonstrated strong climate integration, the private debt, real estate debt, and opportunistic credit managers generally exhibited weaker climate approaches. The Trustee used these findings to initiate engagement conversations with managers. Specifically, SVP, ICG, and Bentall GreenOak have been asked to work towards net zero emissions for all assets under management and to formulate clear transition plans. The Trustee plans to continue annual reviews of managers’ climate approaches. (Michelin Pension and Life Assurance Plan Climate Change Report (DB Section), Plan Year to 31 March 2025, page 4, 16)
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