Understanding stakeholder views to invest for positive change

Written By: Nick Dixon Head of Fund Avon Pension Fund

The Avon Pension Fund serves 140,000 members across Bristol, Bath and surrounding areas. We manage £5.5 billion and are part of the Brunel Pension Partnership pool.

Like all funds in the Local Government Pension Scheme (LGPS), we cover a wide range of employers including local councils, universities, school academies, housing associations, and charities.

First and foremost, we manage the fund for the benefit of our members to ensure they receive the pension benefits they have been promised.

We also recognise that our investment strategy can drive real impact and positive change – and we fundamentally believe there is increasing convergence between financial returns and responsible investing.

We wanted to understand what our diverse stakeholders feel about how their pension fund is invested. In the second half of 2023, we undertook a broad consultation exercise to gather perspectives on how our investment strategy should develop.

Our approach involved two distinct exercises. We held a series of stakeholder discussions with hundreds of people interested in the scheme including local councillors, employers, unions, and pension staff.

We also ran an online survey with scheme members covering current pensioners, active employees, and deferred members. We received over 5,000 responses, demonstrating keen interest in how the fund is invested.

What did we learn?
We found broad support for greater ambition on climate change while not putting the fund at risk, converging on a fresh net zero target of between 2040 and 2045. Stakeholders also supported investing in companies aligning towards net zero, even where they exhibit high carbon intensity today.

Stakeholders also support the idea of making local investments, with the view that investing in affordable housing and green infrastructure such as solar and wind energy across the southwest of England could make attractive investments and achieve positive goals for wider society.

Discussions acknowledged that the “engagement versus divestment” issue is complex and nuanced. Stakeholders generally agree that the fund needs to employ both tools to constructively exert influence and encourage companies to accelerate climate action and their net zero pathway, with the caveat that engagement should not go on indefinitely. Specifically, there was support for divesting from non-aligning companies by 2030.

While there was clear support for bringing forward the fund’s net zero target with more ambitious intermediate milestones, participants in the discussions – especially from local authorities – are concerned by increased risk and have no appetite for this to translate into higher employer contributions.

What have we done?
The key to the success of this process is to turn opinion and analysis into action. Our pension committee recently agreed to a greater climate ambition for the fund, building on significant work already completed, such as £400 million invested in renewable infrastructure and £2bn invested in climate-aligned equities.

The headline is that we are bringing forward the fund’s net zero target from 2050 to 2045. We believe this is ambitious but achievable, and nicely aligns with what stakeholders are asking for.

As well as a high-level target, we have developed a new approach to investment in high carbon companies. The question of whether to stay invested and engage or simply divest is a conundrum for all investors.

We have developed an approach where companies in high impact sectors must be aligning with net zero by 2030. We will divest from companies that cannot confirm alignment underpinned by credible actions and clear milestones.

We are also ramping up efforts to broaden the assets covered by our climate targets to include corporate bonds, private assets and infrastructure. We plan to ensure that 70% of emissions from the fund’s assets either align with our targets or are influenced by active engagement in 2024, increasing to 90% by 2027.

Climate change poses the biggest risk to our planet. We want our members to have secure pensions from a fund that contributes positively to climate resilience.

There is no “Planet B” – but we can all play our part in protecting Planet A.