LGPS funds making further progress on climate goals

West Yorkshire, Tyne & Wear and GLIL have all taken active steps to improve their climate and sustainability credentials in recent months.

The West Yorkshire Pension Fund (WYPF) is consulting on a new investment strategy statement designed to further incorporate climate and sustainability considerations.

Following a review of the £18 billion fund’s approach, West Yorkshire has decided on three themes to embed within a revised investment strategy statement. All three themes are based on the United Nations’ Sustainable Development Goals (SDGs).

The pension fund intends to increase its investment into climate solutions with the aim of achieving net zero carbon emissions from its investment portfolio by 2050.

It also intends to invest in support of SDG 11, “Sustainable Cities and Communities”. This will involve allocating to infrastructure and residential property developments among other projects.

The third theme is designed to support “economic growth driving decent work”, which in turn should underpin investment and innovation and help create better job opportunities.

Councillor Andrew Thornton, chair of WYPF’s investment advisory panel, said: “WYPF’s primary responsibility is to ensure that members’ pension promises are met at an affordable and sustainable cost to employers. Investment beliefs are a crucial part of setting the fund’s asset allocation to achieve this aim and also help shape the responsible investment policy.

“While all of the SDGs have clear merit, we were able to build the most coherent investment thesis around the three themes that we have chosen, which complement our work with a range of local and national partners to help drive sustainable economic growth locally and deliver a positive real-world climate impact.”

WYPF has also made clear that the pension fund “will not use [portfolio] assets to fund new fossil fuel developments”. This includes a decision not to lend to the oil, gas and coal sectors and to put pressure on banks to follow suit.

It is also reviewing its equity holdings in such companies and assess the impact and effectiveness of its engagement with the fossil fuel industry as an investor, including its participation in the Northern LGPS pool and the Local Authority Pension Fund Forum.

Thornton added: “WYPF is committed to achieving net zero emissions for our investments by 2050 and we want to see real-world transition from the companies that it invests in.

“With regards to the fossil-fuel sector in particular, as responsible and engaged investors, we wish to make clear that WYPF does not support further development and that we expect to see tangible progress being made by these companies over the next 12 months.”

The new strategy is currently open to consultation through the pension fund’s website.

New net zero framework for GLIL
GLIL Infrastructure, the £3.6 billion infrastructure fund in which WYPF is invested, has also made changes to is strategy designed to help meet its own net zero target.

The organisation has adopted a new investment management framework based on one developed by the Institutional Investors Group on Climate Change (IIGCC).

The IIGCC’s model establishes methodologies and approaches for investors aiming to align their portfolios with the 2015 Paris agreement on climate change. GLIL is among the first institutional investors to adopt the framework, which was first published in March 2023.

The company said the new framework would “enhance its work in the energy transition by providing further support for its existing portfolio companies to ensure they have achievable net zero pathways”. GLIL has invested in a range of infrastructure assets including renewable energy and battery storage.

Beth Breen, ESG analyst at GLIL Infrastructure, added that the IIGCC’s model “will allow infrastructure investors to bring further substance to their net zero ambitions in a sector where it has been largely lacking”.

“Our adoption of this new framework aligns with our members’ commitment to driving the energy transition towards a sustainable net zero economy,” she said.

Tyne & Wear hits climate target early
Elsewhere within the LGPS, the £12.5 billion Tyne & Wear Pension Fund has achieved the first of its “ambitious” carbon emissions reduction targets two years ahead of schedule.

The fund’s latest climate report indicates that portfolio carbon emissions have reduced by almost 40% compared to 2019 levels. This comfortably exceeds the target of a 30%-35% reduction by 2025 that the fund set out in 2021.

In a statement, the pension fund said its ongoing work on reducing emissions “demonstrates its commitment to addressing climate change and playing its part in reducing carbon emissions and supporting climate solutions as they evolve”.

It has invested in renewable energy and other climate-related assets and projects in recent years, including funding hybrid specialist ships to support maintenance of a major offshore wind farm.

Councillor Anne Walsh, chair of the Tyne & Wear Pension Fund’s pensions committee, said such an investment “not only helps us to achieve the investment returns we need for our members’ pensions, it is also further evidence of the fund’s transition to investing in renewable energy”.