BT Pension Scheme, London, has pledged to achieve net-zero greenhouse gas emissions in its £55 billion ($67.8 billion) portfolio by 2035.
The pension fund, which is the largest corporate fund in the U.K., will work to reduce emissions from the portfolio and will invest in assets that support the transition toward a low-carbon economy. Executives expect that about three-quarters of its assets, around £40 billion, will be reinvested over the period, a spokeswoman said. The changes affect a combination of investments in the growth allocation, which are being reinvested into lower-risk income generating investments as the fund matures, and existing fixed-income investments with maturities of less than 15 years and will need reinvesting. The remaining one-quarter of the portfolio is largely invested in long-dated gilts or long-term infrastructure, real estate or bonds that will not necessarily need reinvesting, the spokeswoman said in an email.
Almost all the assets that will be reinvested are externally managed. "Our intention is to work with existing managers and over time, align all of these mandates with our net-zero goal," the spokeswoman added.
BTPS executives will focus on four areas to achieve its goal. The first is portfolio construction, related to the maturing of the fund itself: By 2035 almost all participants will have retired, meaning the investment strategy will need to focus more on safe, predictable income, such as bonds and secure income assets. "This creates a unique opportunity, without incurring additional transaction costs, to make investments in companies that have lower emissions and increase investment in transition solutions," a news release said.
The second focus will be on its allocations to external managers, aligning new and existing objectives with the net-zero goal. "BTPS will select and retain managers that it believes can deliver the investment performance required and achieve its climate change targets and will require managers to report against a net-zero climate scorecard." This scorecard will be assessed annually "and, if necessary, manager changes will be made," the release said. If BTPS feels managers are not making sufficient progress in aligning the portfolios with the goals, "we will have to reconsider their appointment," the spokeswoman said.
The third focus, on stewardship, will see executives implement a revised voting policy to reflect its new objectives, while the fourth focus — on advocacy — will see BTPS use its influence and join others in advocating for action to achieve policies aligned to a net-zero ambition from policymakers, regulators, governments, the investment industry and other stakeholders.
The decision follows a February survey of BTPS participants in regarding attitudes toward responsible investment, finding that 74% expect the fund to continue taking the environmental and social impact of investments into consideration. Further, 65% expect BTPS to use its investments to make a positive impact on the environment and society.
The new climate change policy aligns with goals set out in the 2015 Paris Agreement, to keep the rise in global temperature within 1.5 degrees Celsius of pre-industrial levels by 2050.
"Climate change poses a clear and present threat to the scheme's ability to meet its long-term commitments," Otto Thoresen, chairman of BTPS, said in the release.
"Continued increases in global warming will amplify existing risks and create new risks with potentially irreversible and catastrophic impacts on markets, society and the environment," he said. "Setting a net zero goal of 2035 is ambitious but we believe the time to act is now and we hope that others will join us in setting their own net zero goals."
The fund's sponsoring employer, BT Group, in 2018 set a net-zero target for 2045.