UK Pension NEST Aims for Net-Zero Carbon by 2050

New climate change policy expected to halve portfolio’s carbon emissions within 10 years.

UK pension fund the National Employment Savings Trust (NEST), which says it is the largest pension in the country by membership, has unveiled a new climate change policy designed to halve the carbon emissions in its portfolio within 10 years and make it completely net-zero by 2050.

The company said the policy aims to align it with the Paris Agreement goals to keep global temperature rises within 1.5 Celsius above pre-industrial levels over the next 30 years.

“Climate change poses serious risks to both our savers and their investments,” NEST CIO Mark Fawcett said in a statement. “As the world’s economy slowly recovers from coronavirus, we want to ensure this recovery is a green one. We have a unique opportunity to support sustainable growth and transition towards a low-carbon economy.”

To help it reach its climate-related goals, NEST moved £5.5 billion ($7.2 billion) of equity shares into climate aware strategies, which represents 45% of its entire portfolio. The firm said the move is the equivalent of taking 200,000 cars off the road or heating nearly 50,000 households for a year via renewable energy sources. NEST will also begin divesting from companies involved in thermal coal, oil sands, and arctic drilling, and it is expected to be completely divested by 2025 at the latest.

Additionally, NEST said it will invest a greater percentage of its funds directly in green infrastructure on top of the £100 million it has already invested in renewable projects across Europe.

NEST cited recent survey data from market research company YouGov that found that, among 2,010 UK adults, of which 1,183 are saving into at least one pension, 79% said they believe it’s important that the economic recovery from COVID-19 take climate change into account. The survey also found that 65% of pension savers believe their pension should be invested in a manner that reduces the impact of climate change, with just 4% strongly disagreeing with that sentiment.

“This suggests pension schemes have a responsibility to put tackling climate change at the heart of their default strategies,” NEST said in its announcement, “rather than expecting consumers to make ‘green’ fund choices.”

NEST said the £5.5 billion it is investing through its climate aware equities fund represents more than £1.2 billion removed from the biggest carbon emitters and invested in companies leading green solutions and implementing strong transition plans.

It also said it expects its fund managers to align the portfolio they manage for NEST with the 1.5C global warming limit, which will be a requirement for all new mandates. Incumbent managers will have three years to demonstrate meaningful progress against defined benchmarks. Additionally, Nest said it will make climate change a focus of its stewardship strategy.

“We believe that stewardship is one of the most powerful tools investors can use to influence companies to change to low-carbon approaches,” NEST said. “It also provides a means for protecting our members’ pension pots. Where engagement fails, we will divest.”

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