The London Pensions Fund Authority (LPFA), has reduced its listed equity emissions by 75% since launching its Investor Climate Action Plan in 2022, according to its latest net zero progess report.
In 2022, LPFA outlined six goals and targets for the listed equity section of its portfolio representing around 50% of its total assets.
This is ahead of the £7.7bn Authority’s goal to reduce total emissions by 75% by 2030 based on a 2019 baseline.
The carbon emission intensity reduction has been delivered partly through LPFA managers’ divestment from extractive fossil fuel companies, it said.
Paul Hewitt, LPFA’s responsible investment manager, said the fund started its journey with targets for listed equity investment, and now that it made progress in that area the plan is to widen its work to add corporate fixed income and more than half of its 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,” he said.
Since the action plan was launched, the fund has increased its engagement with companies in which it invests in and has made progress in aligning its listed equity portfolio with temperatures set out in the Paris Agreement.
Back in 2022, the fund committed to maintaining an implied temperature rise that is consistent with the Paris Agreement. According to its recent update, its implied temperature rise measure is now showing its portfolio at 1.7˚C, down from 1.8˚C as disclosed in its previous report, showing the fund is 0.3°C ahead of its target.
Hewitt said the fund is also working with its investment managers to set a target for investments in climate solutions.
“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,” he explained.
Hewitt pointed out that the fund already participates in the energy transition, and as of September 2023, 4.14% of its total assets were identified as green investments, up from 3% at 30 June 2022.
LPFA is also ahead of its target to align 70% of material sector financed emissions with net zero, reporting that at the end of Q2 72% of the financed emissions in material sectors were aligned to net zero.
Under the action plan, the fund also made a commitment that at least 32% of material sector investments will align to net zero by 2025. The update today shows that at present 29.5% of all its listed equity holdings in material sectors are considered net zero, aligned or aligning.
This is 15.5% above baseline and ahead of schedule for meeting the interim 2025 target of 32%.
Responsible investment policy
The fund launched a new responsible investment policy this week to ensure that ESG considerations were fully embedded in investment decision-making and stewardship.
The policy also reaffirmed the fund’s commitment to collaborating with other like-minded organisations to drive change.
In 2023, the LPFA announced its support for the CDP’s Science-based targets campaign and ShareAction’s Oil and Gas Bank financing campaign.
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