UK’s largest private pension fund to divert £5bn from polluters | pension industry

The UK’s largest private pension fund will shift £5bn of its equity investments to an index avoiding the worst polluters, which will immediately reduce the carbon emissions associated with holdings by 30%.

The Universities Superannuation Scheme (USS), which manages the pensions of UK academics, will introduce a climate ’tilt’ on the money, shifting it to companies working to cut their emissions.

USS holds assets worth £82bn on behalf of 470,000 members of 330 UK higher education institutions, 40% of which are held in shares. It faces pressure from its members to decarbonise, as well as a separate dispute over proposals to cut pension benefits that could lead to a strike.

The £5 billion stake will be transferred to Legal & General Investment Management (LGIM), which will invest it according to a climate transition index developed by Solactive, a German company. Passively held investments were previously managed by BlackRock, the world’s largest asset manager, to mirror MSCI indices. The move will also reduce management costs.

In addition to the initial 30% reduction in emissions associated with the investment, Solactive will ensure that the portfolio’s carbon emissions decrease by 7% each year thereafter. Basically, this calculation will take into account emissions associated with company products, such as oil or gas sold by fossil fuel producers.

“We think this is an important first step,” said Simon Pilcher, the managing director of USS Investment Management, which manages the pension money. “We are committed to the ultimate decarbonization of all assets.

“Our belief, however, is that for this full decarbonization to happen, it is the underlying businesses and the way the world works that must change. So we’re not going to rule out our path to net zero. We must help the companies in which we invest.

Although the move only affects a portion of the program’s stocks, a spokesperson said more of the portfolio should be moved to climate-sensitive indices in the future.

Church of England pension managers showed last week how a similar approach could work in practice, announcing they would sell shares in 28 fossil fuel producers who had not shown clear evidence of plans reduction of emissions.

The USS has faced persistent criticism from some of its members for holding large stakes in major carbon emitters, including oil companies such as Shell and others that depend on combustion fossil fuels, such as Heathrow airport. Campaign group Divest USS says the regime has not done enough to vote in favor of climate-focused shareholder resolutions.

Paul Kinnersley, Emeritus Professor at Cardiff University and co-ordinator of the group, pointed to the fact that USS members included a large number of climatologists and other academics who would likely favor early divestment.

“Any change to USS to decarbonize or clean up its investments is obviously a step in the right direction,” he said, “but they’ve been slow to change and they’ve been slow to share details about the goal. net zero by 2050. We welcome that, but they have a long way to go.

The move could be seen as a blow to BlackRock as it pushes climate-friendly policies, although Pilcher said BlackRock would continue to manage some USS assets. Nor will it make a big dent in BlackRock’s total assets under management, which topped $10bn (£7.4bn) at the end of 2021 – the first time an investor has reached this size.

Regarding the pension dues dispute, the University and College Union said Friday it would set strike dates for members in the coming days unless the USS and employers back down on the proposals. aimed at reducing guaranteed benefits and increasing member contributions. The union argues that this would be unaffordable for members.

Dolores W. Simon