Room151’s special LGPS & COP26 webinar hears there are “opportunities” in moving to net zero, while funds will need to be “honest” and “sophisticated” if they are to contribute.
“It makes actual sense to be aligned to net zero because there’s going to be a huge amount of investment opportunities.” Those were the words of Meryam Omi, head of sustainability and responsible investment at Legal & General Investment Management, while presenting at Room151’s recent COP26 and LGPS webinar exploring the role of pension funds in pursuing net zero.
Omi is also seconded to COP26 and has helped run a campaign called Race to Zero persuading all non-state actors—cities, regions, universities and businesses and financial institutions—to commit to net zero.
The project now has more than 3,000 companies signed up following a formal methodology and making disclosures on their net zero progress. Omi has been working, in particular, bringing financial institutions on board through various groups including asset owners, managers and investment consultants.
But her work also touches on the advice provided by investment consultants, a key link in the investment chain. The big commitment by those signed up is to ensure all default advice to asset owners, including the LGPS, will be coloured by a net zero assumption within two years.“ That’s a really important initiative,” Omi added.
The webinar comes as COP26 is hosted in Glasgow amid much speculation about the progress that can be made on reaching net zero carbon emissions and keeping global warming to to less than two degrees, as agreed at COP21 in Paris.
A good deal of the climate change effort has focused on business especially through the adoption of the TCFD (Taskforce for Climate-related Financial Disclosures) reporting framework which will become mandatory for most financial institutions and listed companies in the UK by 2023. Further consultation is expected on whether TCFD should apply to more companies.
Fresh policies targeting climate change emerge regularly. In recent announcements the chancellor, Rishi Sunak, revealed that new Sustainability Disclosure Requirements mean asset owners and managers will have to substantiate any sustainability claims they make for their investment strategies and portfolios.
Change
Room151 LGPS viewers received advice on how to manage progress towards net zero from Chris Rule, chief executive of Local Pensions Partnership (LPP), on the UK’s eight LGPS pools. Rule said that funds committed to net zero must work on transforming their investee companies rather than dumping stocks in favour of other assets.
“This is about getting what we own to change rather than changing what we own,” he told the webinar.
Rule stressed pension funds would need to work on the data, metrics and measures needed to manage asset portfolios to net zero. Because data currently remains inaccessible in some cases, or inconsistent, there will also be a need for cooperation.
“Working with others in collaboration is really the key if you’re going to make a commitment. Don’t try and do it on your own: Try and work with others,” said Rule.
Honesty and sophistication
While that may help fund managers there was also a warning. Sir Dieter Helm, professor of economic policy at the University of Oxford, said pension funds would need to become “honest” and “sophisticated’ when confronting the challenge of reaching net zero.
Prof Helm stressed that investors need to focus on carbon “footprint” as a target of their strategic policy initiatives, not carbon “production”. The UK’s carbon production has fallen markedly in recent years but its footprint remains much the same owing to imports from China, a huge carbon emitter.
“First of all,” said Prof Helm said, “don’t kid yourself that you’re doing the necessary things to stop causing climate change as an investor unless you’re focusing on carbon footprint and carbon consumption.”
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“Be honest with your investors, be honest with the people piling money into your fund, be honest in your accounting.”
He added that investors should also be “sophisticated”. “The whole fabric of our economies is built on fossil fuels, on carbon, and we have to get realistic about what needs to be done. And that requires sophistication, engagement, detail and proper assessment.”
To watch the full COP26 & LGPS webinar click here.
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