UK Pension Plan Tells Managers: Adhere to Low-Carbon Investments or Leave Us Alone

The Brunel Pension Partnership is now adhering to a “groundbreaking new approach” to weed out companies in its portfolio with carbon emissions that don’t align with the objectives of the Paris Agreement, Chief Responsible Investment Officer Faith Ward announced.

“We have a climate emergency on our hands and it would be irresponsible of us to accept the status quo,” Ward said. She identified several key issues that are helping to perpetuate the sustenance of high-carbon emitting companies, namely an emphasis on short-term performance, which drives short-term thinking.

Ward also alleged there’s an innate unwillingness by asset managers to invest in low carbon assets, and many investors utilize antiquated investment models that “are inherently flawed at taking future climate risk into account.”

Between now and 2022, Brunel will engage with its high-carbon emitting investment managers and solicit their commitments to align their holdings with the standards set by the Paris Agreement. If they do not, Brunel threatens to either divest completely from the company or engage in activist investing and deny voting in the re-appointment of the company’s board members.

Brunel’s actions are similar to that of other institutional investors who’ve announced intentions to completely divest from high-carbon emitting companies. New York City’s pension fund is in the midst of carrying out plans to do so. More than half of UK public universities have committed to do the same.

The California State Teachers’ Retirement System (CalSTRS) recently reported that it will reject the divestment policy, citing that it would rather engage in shareholder activism to sway the corporate culture rather than divestment, which it claims to be a last resort and potentially harmful to the portfolio.

“Our clients have high ambitions on climate change, but the finance sector does not currently offer a sufficient range or quality of climate-aware products and expertise across all asset classes to meet their needs,” Brunel’s CEO Laure Chappell said.

Brunel’s strategy is to follow a five-point plan, inclusive of actions oriented around enabling governmental policy changes, investment in products that stymie climate change, stress tests of portfolios under a range of climate scenarios, reporting on the proportion of climate-conscious companies in their portfolio, and persuading managers to improve their climate management quality.

“Climate change is a rapidly escalating investment issue. We found that the finance sector is part of the problem, when it could and should be part of the solution for addressing climate change. How the sector prices assets, manages risk, and benchmarks performance all need to be challenged,” Mark Mansley, Brunel’s chief investment officer, said.

Brunel Pension Partnership Limited (Brunel) brings together approximately £30 billion investments of 10 like-minded UK Local Government Pension Scheme funds.