LPFA set to invest £400m in climate solutions by 2030
The LGPS fund's increasing appetite for climate solutions follows a £250m allocation to the LPPI environmental opportunities fund in April
The London Pensions Fund Authority (LPFA), a defined-benefit local government pension fund with £8bn in assets under management has set a target of investing 5% of the fund’s current value in climate solutions by 2030.
The fund which has over 100,000 members, had initially set net zero targets through its investor climate action plan in 2022. It is aiming to reduce portfolio emissions by 75% by 2030 and has a net zero target of 2050. Its new climate solutions target is closely linked to the fund’s net zero objectives.
“Net zero is a strategic priority for us and investing in climate solutions is a vital part of that strategy. It’s about ensuring that we invest in opportunities that help us pay members their pensions when they retire”, says Jo Donnelly, CEO of LPFA.
Driven by these targets, the fund has so far invested £150m in climate solutions through its equity and corporate fixed income holdings. The new target comes at the heels of a 3% or £250m allocation to the LPPI environmental opportunities fund announced in April this year.
“We are pleased to be able to commit to a goal combining existing investments and a specific allocation to Environmental Opportunities. Fund investments do evolve, of course, but we are clear about the opportunities that exist in a low carbon future”, Donnelly adds.
Defining solutions
Climate solutions, however, tend to be a broadly defined term. As part of its target setting process, LPFA used guidance from the Institutional Investor Group on Climate Change (IGCC) to define what counts as a climate solution.
The IGCC definition of climate solutions prioritises assets that “contribute substantially to or enable emissions reductions to support decarbonisation in line with credible 1.5˚C pathways”. Guidance on definitions is still evolving, particularly for asset classes beyond equity and fixed income.
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"It’s worth pointing out that, until last week, there's been no definitive guidance on how to approach classifying Infrastructure or Real Estate assets as climate solutions. This means, that our actual investments in this area are likely to be much higher. For example, through our investment in GLIL, we’re invested in projects like Hornsea 1, one of Europe’s largest windfarms. While 5% is a great start, we’ll be revising our targets as we get to grips with the new guidance and as the climate solutions market evolves” commented Paul Hewitt, responsible investment manager at LPFA.
LPFA is likely to refine and revise its climate solutions targets as guidance in this area evolves in the near future.
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