Engagement with companies, research into low-carbon solutions and water issues that could affect investments will form part of the National Employment Savings Trust's plan to combat climate change in its portfolio, said the plan's first responsible investment report.
The £1 billion ($1.3 billion) London-based retirement plan's report sets out how NEST incorporates environmental, social and governance risk factors. Executives engage directly with companies, regulators and industry bodies, and work with money managers and other institutional investors.
The report said NEST works to invest responsibly across four elements: manager selection, active ownership, risk monitoring and risk-derived asset allocation.
It said climate change remains a key priority for 2016, and executives will take a number of steps to reflect that. “We'll be engaging with some of the major oil and gas companies whose revenues are heavily linked to oil and gas exploration,” the report said. Executives want to hear from these companies on the implications of limiting the rise in global temperatures to below 2 degrees Celsius, and how these firms plan to transition to a low-carbon economy.
“We're also researching low-carbon solutions that can effectively hedge, or offset, carbon risk. In addition we're looking into how we might benefit from opportunities by investing in companies positioning themselves for a low-carbon economy consistent with our indexed approach to investing.” The report added, however, that in doing so executives are mindful that NEST “is designed to serve members at reasonable cost. We have to be practical and carry out change in stages as our assets under management grow.”
The report said for participants this means NEST is likely to build portfolios that directly address climate-change risks and opportunities, as well as other sustainability factors, incrementally over time. “Looking into the more immediate future, we'll be taking a deeper look at issues affected by the physical impacts of climate change, beginning with research into water,” the report said.
“We think good-quality master trusts have a responsibility to take an active interest in where members' money is invested and act on behalf of their members as owners of securities,” said Mark Fawcett, NEST chief investment officer, in a statement accompanying the report. “That means considering a broad range of investment risks and opportunities, including issues like the move to a low-carbon economy, the way corporations treat the planet and how companies conduct themselves. Anyone who thinks this isn't relevant to long-term wealth creation should consider the billions in fines and damages imposed on large sectors of the banking industry in recent times.”
The report is available on NEST's website.