NILGOSC has been taking action to mitigate Climate risk since 2008. Its investment fund, currently valued at around £10bn, uses a range of fund managers to make decisions about which investments to hold. Each of these managers are required to take climate change into account, as well as other environmental, social and governance issues, when making investment decisions. NILGOSC also makes investments that are designed to follow an index without such active decision making. It is these investments that have now been transferred to the Low Carbon Transition Fund so that climate risk can be incorporated.
The fund, which is managed by LGIM, tracks the ‘Solactive L&G Low Carbon Transition Developed Market’ index. The strategy behind the index is to reduce exposure to carbon emissions over time. The index initially reduces carbon intensity by 70% relative to the starting universe and aims to reach the goal of achieving Net Zero carbon emissions by 2050. The universe of holdings within the index covers all developed markets but is slightly reduced by two exclusions: companies that derive 30% of their revenue from thermal coal mining; and manufacturers of controversial weapons. Each holding within the remaining universe is assigned a climate score, based on three main indicators: emissions intensity; reserves intensity; and green revenues. Using the overall climate scores, an adaptive tilt away from climate laggards and towards climate leaders is applied to capital allocation within the index.
NILGOSC has a 3 strand approach to mitigating climate risk:-
- Engagement with Governments: Working in collaboration with other investors, and as a member of organisations such as the United Nations Principles of Responsible Investment, Climate Action 100+, the Institutional Investors Group on Climate Change, the CDP and the Occupational Pensions Stewardship Council, engaging with global governments to encourage the policy-making needed to shift to a low carbon economy. More information is available on the NILGOSC website at Engagement and initiatives – NILGOSC.
- Engaging with Companies: Again, working in collaboration with the groups named above, NILGOSC endeavours to encourage companies to move to the low-carbon economy and publish relevant climate data and transition plans. In addition, NILGOSC is the owner of shares in many companies across the world. Therefore, NILGOSC can exercise some degree of influence over these companies by the way it votes at company meetings. NILGOSC’s policy is to vote at every meeting.
- Individual Investments: NILGOSC has instructed its active fund managers to take account of Climate Risk considerations in their decision-making process, provided the primary financial obligation is not compromised. Separately, NILGOSC is also continuing to build up its Infrastructure portfolio and currently holds assets that are an important part of the emerging low-carbon economy. These assets are spread globally and include wind, solar, energy-from-waste and hydropower generators, public transport systems, district heating and manufacturers for the renewable energy industry. NILGOSC also has a significant commitment to a renewable energy infrastructure fund.
We expect to expand our investment Climate Risk work in 2022 and are exploring the measurement of carbon emissions within our portfolios in addition to annual reporting on climate governance, strategy, scenario analysis, risk and metrics.
Further details on the Legal & General fund are available on the NILGOSC website at Passive equities – Low carbon transition fund – NILGOSC.
Responding to Climate Change Briefing Note