UK pension fund Nest to cut down carbon Emissions 30% by 2025

Published on: 22 December 2021 12:25 PM
by KnowESG
UK Pension Fund

A Brief Summary

Nest, the UK pension scheme announced targets to reduce carbon emissions by 30% in its portfolios by 2025. It also plans to divest five companies as they have become unresponsive energy companies that do not have sufficient action to prepare for the transition to a low carbon economy. Read Full Article Below

Nest and UBS Asset Management (UBS AM) have delivered a strong message to firms that they expect them to engage with shareholders on climate change, particularly energy companies that play a key role in the transition to a low-carbon economy.

UBS AM sold its assets in five energy companies: Exxon Mobil, Imperial Oil, Kepco, Marathon Oil, and Power Assets, due to a lack of progress in addressing climate change risk.

These exclusions have been applied throughout UBS AM's Climate Aware funds, including the one it manages for Nest, as well as its actively managed equity and fixed income sustainability funds.

UBS AM's decision comes after a three-year engagement initiative it led as part of its Climate Aware framework, which identified 49 oil and gas businesses as being behind the curve on climate change. During this time, 60 percent of businesses achieved outstanding or excellent progress in shifting to a lower-carbon economy.

As of June 30, 2021, Nest's stake in these five companies was worth £40 million, thanks to its Climate Aware fund. The five companies will not be included in Nest's core portfolio until they show that they are making significant progress toward a low-carbon economy, to provide strong investment value to Nest's savers.

Oil and gas businesses account for a major share of global greenhouse gas emissions and can give both finance and technology to address the problem. Nest, which employs a third of the UK workforce, has stated that it will not support companies owned by its members who do not proactively manage their climate risk or speak with shareholders about their concerns.

Katharina Lindmeier, Senior Responsible Investment Manager at Nest, discussed the latest news and stressed the importance of taking quick action in controlling climate risk in its investments.

"The need for quick action was demonstrated during COP26. The potential of a 2.4°C global temperature rise will result in significant changes in our way of life, and businesses must start planning now to stay lucrative and successful.

"At Nest, we want to engage with businesses to encourage them to make sustainable business decisions, but we have to draw the line somewhere." The five companies that were left out haven't done enough to persuade us to keep our shares.

"The new short-term climate target we're announcing today should show not only that we're serious about getting net-zero, but also that we're not going to waste time." We want to be on the cutting edge of such a critical problem as climate change to provide our members with superior risk-adjusted returns."

UBS Asset Management's Head of Thematic Engagement and Collaboration, Francis Condon, said,

"We believe that engagement is essential to any long-term investing strategy. Investor participation can be a positive influence in influencing company behaviour and speeding up action in areas where it is most required. Companies had three years to learn and respond to our issues as part of our three-year engagement programme. Most companies in the programme have made progress on their climate strategy and transition to a lower-carbon economy. We are, nevertheless, taking action in areas where we have not seen meaningful progress."

Nest is announcing a new carbon reduction target to help maintain momentum and progress toward net-zero by 2050 (or sooner): a pledge to decrease carbon emissions by 30% in public equities and fixed income by 2025. Nest's 2019 portfolio is used to calculate the 30% reduction.

UBS AM has also expanded its climate participation initiative, which is based on the same Climate Aware Framework, to include other industries with significant climate risks and possibilities. Automobiles, chemicals, building and materials, electricity, industrials, utilities, metals and mining, and oil and gas producers are among the 46 enterprises represented.