FT/Pensions Expert interview: Brunel CIO on how pension funds can fight climate change

Alex Monro
Head of Communications
3rd May 2022

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Companies may be willing to commit to ambitious climate outcomes, but with such limits in key data – not to mention variety in forms of data – it is a challenge to ensure meaningful progress.

It was to address questions like these that Alex Janiaud, Deputy Editor at Pensions Expert, last week interviewed David Vickers, chief investment officer at Brunel Pension Partnership, at the DB and DC Pensions Management Summit, which was hosted by the Financial Times and Pensions Expert.

But if data is such a problem, is it even worth asset owners and managers setting climate targets in the first place?

“You can’t move forwards without an aim, and targets helps you plan strategically,” said David Vickers. “They also show you where you are vulnerable to missing your objectives – and where choices have to be made. Targets are also part of TCFD1 recommendations.”

Vickers listed a few of Brunel’s key climate targets for listed equities in his interview:

  • Decarbonisation by no less than 7% per year from a baseline of 31/12/2019
  • Fossil fuel and revenues no greater than the benchmark
  • All our holdings to reach Transition Pathway Initiative (TPI) level 4 or above
  • Engagement on all material holdings so they advance at least one TPI level

Numbers are not enough – but they are needed

However, not all objectives need to be tied to empirical targets.

“Our current policy has five prongs – and these are thematic,” [see diagram in Climate Change section of this website] he said. “It’s also important to assess your progress along the journey, and so we are carrying out a Climate Stocktake on our policies as we speak, in order to see what we have achieved. Science, disclosure levels, ambitions have all changed since we first wrote our Climate Change Policy – progress relies on regularly harnessing these changes to accelerate our progress.”

Janiaud asked whether, in light of this progress, the patchiness of RI data means it’s not currently an important part of how investors can incorporate ESG into their portfolios.

“Data is absolutely part of how we achieve that,” said Vickers. “For example, on a quarterly basis, we provide data for the weighted average carbon intensity or each portfolio and benchmark; extractive revenues as a percentage of a portfolio and benchmark; for the value of companies that derive revenues from extraction; and for the percentage of companies that offer full disclosure.”

They key, he argued, is to not be overwhelmed by the gaps, but to interrogate what we can access, and to help company improve their data gathering and reporting, while always supporting standardisation. He gave the example of Brunel’s Multi Asset Credit Fund, which invests in sub investment grade bonds – an asset class where disclosure is poor.

“We choose firms who have a commitment to Net Zero and can provide us with evidenced intent to develop proprietary ESG ratings so that, supported by engagement, within a year they can begin to measure and monitor their holdings on an RI basis,” he said.

“What’s really encouraging is that we often then see these companies rolling out those same methodologies across their other mandates – and so we are actually influencing the broader investment community, far beyond our little £40 billion pot.”

Vickers believes partnership of this kind enables Brunel to become part of the solution to the data problem – developing a wider set of metrics that can provide a more rounded perspective on companies vital to the transition. Intent is key here – not a desire to simply look good by pulling out of key sectors of the economy, but a desire to engage with companies in order to accelerate the Net Zero transition – and thus not allowing the perfect to be the enemy of the good.

“There can sometimes be an overemphasis on decarbonising your portfolio,” he told Janiaud. “You are trying to support companies through the transition. What you should be trying to do is change the real economy – remember that 95% of the world’s oil revenues are outside listed companies. Only a multi-pronged approach can really change the world, using engagement and other tools.”

 

Sessions from the DB & DC Pensions Management conference can be watched by registering and then going to https://events.bizzabo.com/371635/agenda

[1] TCFD stands for Taskforce for Climate-Related Financial Disclosures, a body which seeks to develop consistent climate-related financial disclosures for use by companies, banks and investors for use with their stakeholders.


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