People’s Pension, the UK’s largest commercial master trust pension scheme, has abandoned its use of a single overarching 1.5°C-aligned climate target across its portfolio, citing a lack of policy action.
The scheme, which looks after £40 billion in assets on behalf of seven million members, said that global greenhouse gas emissions were not on track to limit climate change to 1.5°C above pre-industrial temperatures. It noted also that the target had been put in place to mitigate the risks of Paris-aligned policies, which had “not materialised”.
According to a statement, People’s Pension will prioritise managing transition risks to asset values by implementing a “bottom-up approach” that reflect differences across markets, asset classes and sectors.
The scheme said it will continue to have a net zero ambition that is aligned with the Paris Agreement, but that “target-setting will also be considered on a case-by case basis”.
“This updated approach demonstrates a robust evidence-based process to support climate action that is grounded in a clear objective: to protect and grow our members’ savings, said Dan Mikulskis, Chief Investment Officer of People’s Partnership, provider of People’s Pension, citing the need to take account of seven years of evidence on market-wide decarbonisation and policy change since the scheme adopted its portfolio-level target.
“We believe the retention of a Paris-aligned ambition is important, but it must be rooted in bottom-up realities as to the role that investors can play in achieving it to ensure better outcomes for our members,” he added.
The announcement follows the commissioning of a comprehensive literature review from sustainable investment specialists Canbury.
People’s Pension said addressing climate risks and opportunities in portfolio construction will remain a priority, albeit based on valuation discipline and risk control, “rather than positioning that places too strong an emphasis on climate policy materialising”.
“We remain firm that climate change is a significant long-term financial risk, but that misaligned, or overly ambitious climate strategies can also harm our members if they rely on optimistic assumptions about the speed or nature of transition,” said Mark Condron, Chair of People’s Pension Trustee Board.
“By grounding our approach in real world evidence, we can back a credible transition while safeguarding the retirement outcomes our members rely on.”
