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Impact Investor Forum: Leading pension funds on managing a just transition

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Published: 23 May 2024

Pension funds highlighted the importance of investing in the just transition as part of a holistic approach to risk, and talked about some of the challenges and complexities they are facing.

From left to right: Maha Khan Phillips, Sally Bridgeland, Edina Molnar, Adam Gillett, Marc Barnett

Pensions providers are becoming increasingly alert to the need to consider the just transition in their investment strategies, given the risks to their members’ future  health and economic wellbeing associated with global warming and the energy transition, panellists told the Impact Investor Forum 2024.

The panel covered a range of major themes currently under discussion within the industry, where leaders are becoming more attuned to the long-term interests of their own members, beyond the need to maximise return rates on investments. 

Speakers said it made good investment sense to support the just transition – ensuring that social and economic impacts on people’s lives receive support alongside other aspects of the energy transition, such as carbon emissions reductions.

Sally Bridgeland, the newly appointed deputy chair of Brunel Pensions Partnership, and a pioneer in the area of responsible and sustainable investing, told attendees that pension funds should take account of what the world will look like when their contributors become pensioners. A failure to act could see costs such as higher energy prices and climate-related insurance premiums eating into the real value of those pensions. 

“Looking into the future, it is not just about the returns. It’s about the cost of living for our pensioners in retirement. That’s how I think about acting in the best interest of pensioners,” Bridgeland said. “Whether we see pensioners retire to Gotham City, or to a world where energy is secure and our future is sustainable, really does matter.”

Brunel is one of the UK’s eight Local Government Pension Scheme (LGPS) pools which, over the last year, saw assets under management (AUM) increase to £30.8bn, (€36bn) equating to 84% of client investment within the partnership pooled structure.

Marc Barnett, head of investment at Cushon, the £2.3bn defined contribution master trust which has set an ambitious target to reduce the scope 1 and scope 2 emissions of its default strategy by 80% by 2030, said achieving better long-term outcomes for pension contributors required putting social issues at the front and centre of investment strategies aimed at supporting the energy transition. 

“The main reason why we, as a society and as investors, care about climate change is ultimately because of the impact that it has on people and communities in our local area and around the globe. It would be remiss of us as investors to ignore those implications on the way,” he said.

Geographic focus

Whether investments made through the lens of the just transition are more valuable if they are made in the home market of a pension fund, or in poorer parts of the world where need is more acute, is one current debate within the industry. 

Bridgeland said that, although social investing in the developing world may seem remote for some western investors, if it leads to more stable and productive societies then the whole world would benefit economically, potentially creating “a higher bang for your buck in terms of impact” in the long-term.

Wherever investment is made, it is likely to be more effective if it is in the themes in which pension fund sponsors are most engaged.

“If you focus on the things that you know most about, then you’re more likely to be able to have a good conversation, and have good stories, as well as good data about what you’re investing in,” Bridgeland said.

Size matters

When it comes to investing in the just transition, larger pension schemes are in a better position to do so than smaller ones, due to their greater clout in talks with their asset managers and their ability to mobilise more resources to assess the risks, Edina Molnar, vice president, sustainable investment at investment consultancy Redington told the forum. 

But she said smaller schemes could still take steps to start integrating the just transition into their strategies by closer engagement with their asset  managers and a tighter focus on stewardship. 

However, incorporating the just transition into investment strategies is challenging for all players.

“There are an awful lot of issues to understand, and nuance within those. It’s often very individual-specific or specific to communities. And when you multiply this up over a portfolio that gets very scary, very quickly,” said Adam Gillett, senior investment manager and climate lead at Railpen, one of the UK’s largest and long-established pension funds with approximately £34bn in assets – the vast majority of which are in defined benefit structures.

He said Railpen’s task was made somewhat easier because the scheme directly manages most of its own assets and carries out its own corporate engagement.

Gillett highlighted the effective work being done by some companies in relation to the just transition which could be templates for others to follow.

“There are some leading mining and energy companies that I think can provide a blueprint for a just transition and engagement around the really tricky things that need to change and the very real effect on people’s livelihoods, jobs and property,” he said.

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