Investing in climate

Our Chief Investment Officer explains how The People’s Pension is making its investment portfolio more climate friendly.

The government estimates the UK emitted a net 564 million tonnes1 of carbon dioxide in 2018.

By 2050 they plan to bring this number right down to net zero – a clear signal that the future economy will be much less net carbon intensive compared with todays.

At The People’s Pension, we’re working on our proposals so that from midway through the 2020’s we’ll be in a position to invest the new money we receive in pension contributions flows into net zero investments.

What we’re doing

First, climate change risks and opportunities are nuanced, so we want to take a measured approach and deal with them in the right way.

We invest more than £200 million net for our members every month and we seek opportunities to reduce fossil fuel reserves when we deploy member flows. At the same time, we try and avoid investing new money in outdated technologies knowing that we would need to bear the costs of de-commissioning them in later years.  

Second, we’re looking at companies that will become the industries of tomorrow. Most of these are small firms – while the bigger companies are trying to evolve to meet the climate challenge.

Third, our portfolio will still include older assets that we’ll have to deal with. We’ll do this either by engaging with the company management teams or withdrawing out investments altogether – a practice known as divestment.

Thinking differently

At The People’s Pension, we’re not passive investors. It seems clear that when passive investment businesses promise to engage with companies, it hasn’t really worked. We can’t detect much material change in the underlying companies to show for it. What’s more, time is not on our side when it comes to climate change.

We think differently to traditional passive investors and do something different. We blend engagement with the ability to tell companies that we’ll sell if their metrics don’t improve. Highlighting that if we don’t hold the equity, we won’t allow the bonds to roll over, should get the attention of any chief financial officer.

A way to go…

We have a way to go to put all this into practice. But we think this approach to climate change means we can reduce our members’ exposure to owning old technology and help finance new technologies.

Read our Responsible investment policy

1https://www.ons.gov.uk/economy/environmentalaccounts/bulletins/ukenvironmentalaccounts/2020#greenhouse-gas-emissions