Brunel Pension Partnership, Bristol, England, will review and terminate money managers and portfolio companies that fail to align with the fund's climate change policy, unveiled Monday.
The £30 billion ($39 billion) pool of local authority pension funds will give its managers two years to incorporate its policy, a Brunel spokesman said.
Aiming to create a carbon-neutral financial system, Brunel also expects companies it invests in to take steps to align their emissions with its policy and improve their management of climate issues.
Similarly, companies that fail to reduce emissions will face votes against the re-appointment of board members or will be removed from Brunel's portfolios in 2022.
Brunel will also test its portfolios under a range of climate scenarios, challenging its managers to show reduced exposure to climate risk and effective corporate engagement. Managers that fail to do so will be replaced, Brunel warned.
"We found that the finance sector is part of the problem, when it could and should be part of the solution for addressing climate change," Brunel CIO Mark Mansley said in a news release. "How the sector prices assets, manages risk and benchmarks performance all need to be challenged."
Under the its five-part, climate-change policy, Brunel will also encourage policymakers to adopt policies mandating the removal of fossil fuel subsidies and establishing a "meaningful price on carbon."