by Marion Maloney, Head of Responsible Investment & Governance for the Environment Agency Pension Fund
Here’s something you may not know. The Environment Agency has a world-leading pension fund.
And now we want to go further. We want to halve the emissions from the over 2,000 companies we invest in by 2030 to get to net zero by 2045.
Before I tell you why this is important, let me give some background.
The Environment Agency Pension Fund is funded by employer and employee contributions. We’re part of the Local Government Pension Scheme, have around 39,000 members and assets of just over £4 billion. We invest in these assets to generate the returns we need to pay pensions in the long-term.
Our approach has been based on a long-standing commitment to invest in products that are good for the environment and society while also ensuring competitive financial returns - an approach that has generated a healthy return. As of December 2020, our funding level was 107%, meaning that our current assets are greater than our future liabilities.
Climate change presents a significant financial risk to us, and indeed all investors. We don’t want to be invested in companies that are not ready to align to new policies or regulations to help reduce global emissions. We don’t want to be invested in companies that are not resilient to the changing climate.
But climate change also presents investment opportunities - the opportunity to invest in products that produce less carbon, use less energy or help society manage weather-related events such as wildfires and power disruptions.
These risks and opportunities form the basis of the Environment Agency Pension Fund's new net zero policy. Based on climate data, we have an investment strategy to get to net zero by 2045 with interim steps along the way. We have an approach to help ensure our investments are resilient to a changing climate and in turn help society adapt to climate change. And we do this in a way that at all times considers the best long-term interests of our members and the need to secure the provision of their pension.
Our pension pot of £4 billion may sound a lot of money but there’s an estimated £3 trillion invested in UK pension funds - that’s £3,000,000,000,000. Investors are increasingly aware of the need to account for environmental and societal issues in their investments. This ties into the government's Green Finance Strategy to green financial systems, mobilise finance for clean and resilient growth, and capture the resulting opportunities for UK firms.
But back to our Fund and three stats I want to leave you with.
92% of our pension fund members who took part in an engagement event last summer thought it was important that we had a net zero target. I suspect they said this for primarily environmental reasons but we’re also doing this for financial reasons – this is in the best long-term interest of the fund.
We’ve reduced carbon emissions from our listed equity portfolio by 74% over the last ten years. At the same time the value of these investments have risen by 94% to £1.25bn. Our Fund shows that you don’t have to compromise on return.
And finally how can I justify saying at the beginning of this article that our fund is world-leading? We’ve been chosen by the United Nations Principles for Responsible Investment as one of the global leaders on responsible investment for the past 2 years running.
Deciding where your money is invested is one of the most powerful actions you can take to address climate change. So what are you waiting for – check your finances today!