UK master trust Smart Pension has pledged to remove exposure to commodity-driven deforestation from its main investment arrangements.
The £4 billion defined contribution pension provider announced that it plans to assess its exposure to deforestation, conversion, and associated human rights abuses and to what extent they pose an investment risk.
This will lead to an assessment of the robustness of its current fund managers’ policies and identify opportunities to drive change through capital allocation and engagement.
Smart Pension also plans to set target dates to cut deforestation exposure in its portfolio, though no set dates have been confirmed yet.
The master trust is one of 11 pension providers who have joined forces with Global Canopy and Make My Money Matter in 2022 to establish a working group on reducing pension scheme exposure to deforestation.
Fewer than one in five of the 77 pension providers who have signed up to GFANZ and Race to Net Zero have comprehensive policies on deforestation in place, Global Canopy warned in a report published at the end of 2022.
Smart Pension’s deforestation is part of its broader net zero by 2040 target. The pension provider announced earlier this year that it had halved the emissions of its default growth fund two years ahead of schedule and emphasised that this has been achieved by prioritising decarbonisation, rather than using offsets.
In practice, the deforestation pledge will particularly affect Smart Pensions default option, the Sustainable Growth Fund, which predominantly invests in equities. But the fund also has a 13% allocation to impact investments including a specific biodiversity strategy.
Index providers such as MSCI are increasingly offering metrics to track the impact of deforestation. MSCI estimates that some 140 companies or 5% of constituents included in its All World Index are contributing to deforestation.
