LPFA publishes Net Zero Progress Report

• Listed equity portion of LPFA’s £7.7 bn portfolio aligned with Paris Agreement at 1.7◦C
• 75% reduction in Listed Equity carbon emissions intensity
• Fund expands net zero coverage into Corporate Fixed Income and Real Estate

The London Pensions Fund Authority (LPFA), a £7.7 billion Local Government Pension Scheme Fund, has published its update report detailing the net zero progress that the Fund has made since launching their Investor Climate Action Plan in 2022.

In 2022, the LPFA outlined 6 goals and targets for the Listed Equity section of their portfolio, representing around 50% of their total assets. This latest report outlines the good progress that has been made across all goals (see below).

CEO of the LPFA, Robert Branagh, said: “The impact of climate change brings both risks and opportunities to pension funds and it’s our duty to manage both so that we can continue to pay our members their pensions. As active members of the C40 Cities Invest/Divest network and in line with our net zero commitment, we aim to communicate our progress simply and clearly and share our experiences widely with our industry. It’s important that members, peers and other stakeholders can understand what we’re trying to do, how we are doing and the challenges that we’re all facing.”

According to Paul Hewitt, LPFA’s Responsible Investment Manager, “We started our journey with targets for our Listed Equity investments and we’ve made good progress in that area. We’re now widening our work to add Corporate Fixed Income and more than half of our 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.”

The Fund has increased their engagement with companies in which they are invested and has made progress in aligning the listed equity portion of the Fund with temperatures set out in the Paris Agreement. The Fund is 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. As a Fund, though, we are already participating in the energy transition. As at September 2023, 4.14% of our total assets were identified as green investments, which we defined as investments in businesses directly contributing to the global transition to a lower carbon economy. This is up from 3% at 30 June 2022.”

Progress Summary on our goals:

• Reduce emissions by 75% by 2030 from our 2019 baseline
  • In the listed equity part of our portfolio, emissions intensity, as measured in tCO2e/£m invested, has already reduced by 75% compared to our 2019 baseline. This is ahead of our 2030 target and has been delivered partly through our managers’ divestment from extractive fossil fuel companies.
• Maintain an implied temperature rise that is consistent with the Paris Agreement
  • Our implied temperature rise measure is now showing our portfolio at 1.7˚C, down from 1.8˚C at previous report. This means we are currently 0.3°C ahead of our target.
• We will increase our investment in the climate solutions needed to meet net zero by 2050 or sooner.
  • IIGCC published their guidance on defining Climate Solutions in November 2023. Without this, it was challenging to set a baseline in time for this report. We will now be publishing this target later in 2024.
• At least 32% of material sector investments aligning to net zero by 2025
  • 29.5% of all our 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%.
• At least 70% of material sector financed emissions aligned with net zero, aligned or subject to engagement, starting immediately
  • At the end of Q2 2023, 72% of the financed emissions in material sectors in the portfolio were net zero, aligned to net zero or under engagement. This is ahead of the 70% target we set for December 2022 (Q4 2022: 66%).
• By 2030, we aim to reduce our own Scope 1 and 2 GHG emissions by 50% per full time employee, relative to our GHG emissions in 2022-23.
  • We have been recertified by the Planet Mark, but our operational emissions are likely to increase as post-COVID travel has resumed.

The Fund has recently launched a new Responsible Investment Policy to ensure that environmental, social and governance considerations are 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.