London Pensions Fund Authority publishes investor net-zero plan

The London Pensions Fund Authority (LPFA) has issued an investor climate action plan, highlighting six targets across implied temperature rise, Paris-alignment and engagement.

The £7.6bn fund was created to manage the pension assets of the Greater London Council (GLC) after it was disbanded. It manages pension assets on behalf of the British Film Institute, Greater London Authority, the Horniman Museum, the Guinness Trust, the Soldiers, Sailors, Airmen and Families Association (SSAFA), among others.

The LPFA covers 91,600 members and 124 contributing employers and is the largest local government pension scheme (LGPS) fund in London. It outsources investment management services to Local Pensions Partnerships Investments (LPPI).

The fund has made a commitment to reduce its scope 1 and 2 emissions by 75% by 2030, which funding and risk director Peter Ballard says is “ambitious”.

It has also pledged to maintain a Paris-aligned portfolio and to “drive real world change” through engaging with companies in the fund that are contributing markedly to emissions.

Six goal framework

The plan outlines six goals and was developed using the Paris-Aligned Investment Initiative (PAII) framework.

Goals include: reducing emissions by 75% by 2030; maintaining an implied temperature rise consistent with the Paris Agreement; increase investment in climate solutions and set a percentage target in 2023; have at least 32% of material sector investments aligned to net zero by 2025; have at least 70% of financed emissions aligned with net zero or subject to engagement, starting immediately; and to operationally reduce greenhouse gas emissions per full time employee by 50% by 2030.

Immediate attention will turn to its public equity holdings, according to the LPFA, representing 50% of total fund assets and around £3.8bn in assets.

Ballard told Net Zero Investor the headline emissions reduction of 75% across scopes 1 and 2 was intended to go beyond simply “greening the fund”.  

“We hope to include scope 3 emissions next year as more data becomes available,” he says. “We are currently still lacking that defensive, risk-mitigating data that would allow us to account for indirect emissions. It is something we are looking to do as soon as possible, though.”

Ballard notes that the fund will indeed need to disclose scope 3 data in order to meet its Task Force on Climate-Related Financial Disclosures (TCFD) obligations, as trustees are required to obtain scheme asset emissions across all scopes as per the regulation.

The net-zero bottom line

Regardless, Ballard says, the LPFA board had been clear on its desire to be ambitious: “We opted to include a target on implied temperature rise, which is not included in the net zero framework. We felt that adopting a forward-looking metric gives a better view that is more useful for investment decision-making.

“The bottom line is that members want us to be making these pledges. They want to see it from us. LPPI is totally aligned with our views and agrees with our premise that this is not about ‘massaging the portfolio’ it’s about enacting real-world change.”

When asked about its current engagement efforts and its stance on divestment, Ballard says it actively collaborated with LPPI to encourage change from companies.

“As the asset owner, we have influence and a chance to set the tone. There’s a line of responsibility. We need companies to change and we are the ones who have a say on that.”

The LPFA does not have a direct policy on divestment, according to Ballard, though he noted:

“Companies need plans. It’s going to be more difficult for us to invest in companies that aren’t aligning to net zero though we wouldn’t automatically exclude firms.

“It’s about collaboration and we have an expectation for companies to implement plans to reduce their emissions. It’s good risk management for us to put this plan in place and we believe that’s the case for pension funds and schemes across the board.”