UK public-sector pension pool increases scrutiny of managers’ climate engagement efforts with new “data-driven approach”.
Border to Coast (B2C) Pensions Partnership, the UK’s largest local government pension scheme (LGPS) pool, has reported exceeding its climate targets, but is nevertheless upping pressure on managers to provide support.
According to B2C’s ‘Climate Change Report’, released this week, the pool’s financed emissions were two thirds (66%) below 2019 levels in the year to March, which places it ahead of the 53% target reduction by 2025 set out in its net zero roadmap.
B2C also reported that it was actively engaging with firms responsible for four fifths of its financed emissions (78%). Companies generating 39% of B2C’s financed emissions are already aligned or aligning with net zero pathways. The report said the pool has also invested £8.2 billion in climate solutions across equities, fixed income, and private markets.
The pool manages £55 billion in assets on behalf of eleven partner funds and is responsible for the pensions of 1.1 million LGPS members. A further seven funds entered exclusive discussions to join the pool earlier this month, as a result of a government initiative to consolidate and streamline the local government pension sector.
Engagement quality
In a separate annual ‘Responsible Investment and Stewardship Report’, B2C highlighted measures it has taken to further ensure managers are providing the necessary support for its climate and sustainability objectives.
These include refining the pool’s manager assessment process by defining the “aspirational responsible investment principles” against which it measures managers. One effect is to increase the focus on managers’ approaches to climate risk and their participation in industry initiatives, with firms required to submit relevant documentation.
B2C has also enhanced the quarterly monitoring processes that supplements its formal annual assessment of managers by including an attribution analysis for significant movements in fund emissions and updates to manager-reported stewardship data.
“The new data-driven approach has improved our assessment of the quality of engagements conducted by our managers, enhancing our dialogue with external managers on stewardship standards,” the report said.
For the annual review exercise, B2C’s responsible investment team asks managers to report on policy changes, resourcing, responsible investment integration, engagement and alignment of their voting records with its own.
The pension provider’s changes follow a period in which a number of global asset managers and banks have withdrawn from collaborative industry programmes focused on reducing financed emissions. The Net Zero Asset Managers initiative announced the temporary suspension of its activities in January following the departure of a number of large firms including BlackRock.
Asset owners have made clear the importance of support from managers for their net zero stewardship efforts with the release in February of a climate stewardship statement. Signed by 26 large asset owners, the document sought to address “material divergence” between asset owner expectations and implementation of climate stewardship by managers.
“We believe a collective response is the most powerful way to manage the risks of climate change,” said B2C CEO Rachel Elwell, noting engagement with high emitting firms alongside partner funds, as well as collaboration with external managers and industry initiatives.
According to its stewardship report, B2C voted for 80% of environmental shareholder resolutions in 2024 and 78% of social resolutions. It also voted against 40% of ‘say on climate’ resolutions due to insufficient progress on firms’ climate transition plans.
Transition to a low carbon is one of four engagement priorities for B2C, alongside water, social inclusion through labour management, and diversity of thought.
Voting for transition
As part of its engagement with high emitting firms, B2C voted against the chairs of 66 firms during the 2024 proxy season. The firms were pre-advised via letters which outlined its expectations of credible net zero transition plans with reference to established benchmarks.
B2C updated its voting guidelines for the 2025 proxy season to incorporate deforestation risk. This means it will vote against management of firms involved in commodities with high deforestation risks that do not have adequate policies in place to reduce their impact or are involved in controversies.
“ESG factors are not a ‘nice to have’ for investors, they are fundamental drivers of financial value. We stand by our belief that active engagement with companies is the most effective way to influence real change,” said Colin Baines, Stewardship Manager, B2C.
To meet its commitment to achieve net zero by 2050 or sooner, B2C has set emissions reduction targets at the portfolio and asset class level. However, the percentage of AUM covered by B2C’s net zero roadmap has decreased to 62% (from 70% in 2024) due to an increase in value of its private market and real estate assets, for which it has not yet set targets.
For listed equities, B2C is targeting reductions of 52% and 65% by 2025 and 2030, respectively, from 2019, with cuts of 54% and 66% targeted for fixed income investments from a 2020 baseline.
