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Pension funds get tough on climate laggards

ImpactAlpha, Jan. 30 – As CO2 levels this week were projected to see their steepest annual rise ever, three large pension funds warned that they would crack down on companies and asset managers who are not doing enough to transition to a low-carbon future.  

The Brunel Pension Partnership, which manages a £30 billion pool of local pension funds in the U.K., issued a stark rebuke to the asset management industry, which it called “not fit for purpose” when it comes to addressing climate change.

“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,” said chief investment officer Mark Mansley. “How the sector prices assets, manages risk, and benchmarks performance all need to be challenged.”

Stern warning

As part of an ambitious new climate plan, the partnership said it would size up the efforts of both asset managers and portfolio companies to contain global warming within the benchmarks of the Paris climate agreement.

“Managers that fail to do so face the threat of having their mandates removed,” the statement said. Companies, meanwhile, could face votes against their directors’ re-appointments or divestment.

Burying coal

The New York State Common Retirement Fund put 27 thermal coal mining companies on notice to demonstrate their readiness to transition to a low-carbon environment or be dropped from the $210 billion fund. Ceres’ Mindy Lubber said the move by the country’s third largest state pension system would help it reduce climate risks and “ensure that the Fund invests in transition-ready companies.” Thermal coal mining, she said, “has a dim future in light of the accelerating transition to a sustainable, net-zero emissions economy.”

Passive aggressive

The Church of England Pensions Board has moved £600 million into a new passive index it created with the London Stock Exchange. The FTSE TPI Climate Transition Index is based on Transition Pathway Initiative (TPI), an asset owner-led initiative that tracks whether companies are aligned with Paris goals. In: Shell and Repsol. Out: ExxonMobil, Chevron and BP.

“The message is clear to all publicly listed companies: put in place targets and strategies aligned to Paris and be rewarded with inclusion in the Index, or work against the long term interests of beneficiaries and wider society, and be excluded,” said the pension board’s Adam Matthews.

Real estate risk

PGGM, a €160 billion Dutch pension manager and one of the world’s largest real estate owners, announced it would work with Munich Re to analyze each of the assets in its portfolio, from companies to real estate holdings, to identify those with the most climate risk. 

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