The London Pensions Fund Authority (LPFA) has achieved a 75% emissions reduction in its listed equity portfolio and expanded its net zero coverage to corporate fixed income and real estate.
In 2022, LPFA, which has assets worth £7.7bn, outlined six goals for its listed equity holdings, representing around 50% of the entire portfolio.
According to the Local Government Pension Scheme fund’s Climate Action Plan 2023/24 progress report, LPFA has already managed to achieve one of its targets, a 75% emissions reduction in its listed equity portfolio. This is partly due to its managers’ divestment from extractive fossil fuel companies, the fund explained.
LPFA is ahead of its 70% target for net zero alignment of its material sector financed emissions, with the fund achieving a 72% alignment in 2023/24. The fund is also “ahead of schedule” for meeting its interim target of aligning at least 32% of its material sector investments to net zero by 2025.
This means that LPFA’s portfolio is now aligned with the Paris Agreement at 1.7˚C, down from 1.8˚C at the previous report.
Paul Hewitt, LPFA’s responsible investment manager, explained that due to this “good progress” on the fund’s targets for its listed equity investments it will now expand net zero coverage to corporate fixed income and half of LPFA’s real estate holdings.
“With this expansion, over 54% of our portfolio is now under net zero targets and monitoring. While we have made good progress, we know that this is just one point in time and much more difficult stages remain ahead,” Hewitt explained.
Another one of the LPFA’s six goals was to increase its investment in climate solutions to help meet net zero by 2050. The report revealed that the pension fund is working with its investment managers to set a target for commitments in the area.
“We are using the Institutional Investors Group on Climate Change’s (IIGCC) Net Zero Investment Framework to guide us but the guidance on how to define a climate solution was published later than we originally anticipated, and so we were unable to set a target in 2023. As a fund, though, we are already participating in the energy transition,” Hewitt added.
As of June 2023, 4.43% of LPFA’s total assets were identified as green, with most of the exposure being held in renewable infrastructure, the fund said.
LPFA also has an ambition to reduce its Scope 1 and 2 greenhouse gas emissions by 50% per full time employee, the report revealed that the fund has been recertified by Planet Mark to calculate the operational emissions of the pension fund.
The publication of LPFA’s net zero progress report comes as the pension fund launched its new responsible investment policy to increase its monitoring and engagement activity around environmental, social and governance issues in its portfolio.
The new policy identifies four pillars: climate change, natural capital, the just transition and good governance.
Last year, LPFA also announced that it was backing the Carbon Disclosure Project’s science-based targets campaign and ShareAction’s oil and gas bank financing campaign.
