In a major announcement for a UK retirement scheme, Wiltshire Pension Fund confirmed today it plans to divest from fossil fuels by 2030.
"We have set a target to achieve net-zero carbon emissions across all our investment portfolios by 2050, and this plan is one part of how we aim to achieve this goal," The £3.1bn local government pension fund said.
"As a long-term investor, WPF's goal is to protect the investments from climate change risk, and safeguard the financial future of the fund," the pension fund explained.
It stressed its supports a global warming scenario of "well below 2°C."
WPF does not see a long-term place for fossil fuel investments in its portfolios, and will work towards being fully divested from these companies by 2030, it said.
"In the short term we will continue to monitor our holdings in these companies, to ensure that any such investments are helping to finance real-world change," the fund explained.
"Alongside this, we will continue to invest in renewable infrastructure and climate solutions, to help create sustainable replacements for traditional fuel sources, and contribute positively towards ensuring energy security."
WPF said this approach aims to ensure that the fund's risk of exposure to stranded assets is well managed, and that it can benefit from the investment opportunities presented by the transition to a low carbon economy.
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The total value of the fund's holdings in fossil fuel firms amounts to just under 1% of its entire investment portfolio, WPF said.
"Our investments are held in pooled investment vehicles, alongside other investors," the retirement scheme stressed.
"There is a risk that these [pooled investment] arrangements may impose certain limitations on implementation of our divestment policy, as individual investors such as WPF may not be able to request the sale of specific stocks," it added.
Nevertheless, "we have communicated our stance to Brunel Pension Partnership and other investment managers, and we are actively collaborating to navigate these challenges and progress toward our sustainability objectives," WPF concluded.
At odds with Brunel
The decision to divest comes only weeks after Net Zero Investor reported WPF is at odds with its pool Brunel over its investment in fossil fuel companies, which have contributed to an increase in the funds' carbon emissions.
WPF acknowledged in its latest Climate Report that the fund is currently "behind target," adding that it "does not expect that our decarbonisation journey will be completely smooth."
The biggest factor affecting WPF's carbon performance this year has been an increase in the carbon intensity of the Global High Alpha portfolio, managed by Brunel.
The portfolio has a target of reducing its emissions by 50%, based on a 2019 baseline, by 2030, which is consistent with a 7% year-on-year reduction.
"There is a risk that these [pooled investment] arrangements may impose certain limitations on implementation of our divestment policy."
However, this year the portfolio’s carbon jumped significantly. WPF explained that this is primarily because of two factors.
Firstly, "the war in Ukraine has led to increased energy prices, which has meant that energy companies have gone up in value. This means that they have increased in weight in our portfolios, and with their high emissions, this has had an impact on our overall footprint," the report read.
Secondly, WPF pointed out that there is a new fossil fuel company now held in Brunel's Global High Alpha portfolio, MEG. "This high emitter has led to an increased footprint. We have tackled this issue with Brunel directly," WPF said.
In response, Brunel said that it has set a target of reducing the emissions carbon intensity (scopes 1 & 2) across listed equity and corporate bond portfolios by 50% by 2030 (from a 2019 baseline).
In the case of the Global High Alpha portfolio, the 2023 RI & Stewardship Outcomes Report shows the progress of the Global High Alpha portfolio (GHA) in cutting carbon exposure by more than 40% versus its 2019 baseline.
When approached by Net Zero Investor, Brunel CIO David Vickers explained that the Global High Alpha portfolio is managed externally.
"MEG Energy is held by one of our underlying managers that we outsource stock selection to. The manager in question is of the opinion that the company is on the path to alignment but given the challenging nature of the sector it occupies, it is a holding that we are obviously in extensive conversations with them about to fully understand their rationale and provide the appropriate challenge," he explained.
"As you would expect, the manager is engaging with MEG Energy management directly about their Net Zero targets, commitment to those targets, their decarbonisation strategy and importantly have set measurable milestones that will assess progress and the credibility of the end target. We of course in our dialogue with the manager are kept abreast of any stock like this that is in our escalation process" Vickers stressed.
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The inclusion of fossil fuel firms leaves WPF in a tricky position, as the UK government is intent on pooling all listed LGPS assets by 2025, leaving administering authorities with little room to adopt their equity portfolios.
Vickers emphasised that Brunel exists to meet the investment objectives of all clients, with many being at different stages in their net zero journey.
"We are a partnership and act as such, our policies and actions must be consensually agreed. We are in regular dialogue with all Brunel clients to ensure the implementation of the policy meets the level of ambition on climate and other objectives and there are other options for clients to utilise in order meet their objectives as they evolve," he explained.
"MEG Energy is a holding that we are obviously in extensive conversations with them about to fully understand their rationale and provide the appropriate challenge."
£100 million renewable energy push
In October, WPF joined forces with Avon, Cornwall, Devon, Gloucestershire and Oxfordshire pension funds backing £330 million in commitments to the Wessex Gardens fund managed by Schroders Greencoat.
All six funds are part of Brunel Pension Partnership, a £35 billion pool managing the assets of ten local authority pension fund.
WPF alone has committed £100 million to the strategy which now makes 7% of its climate opportunities multi-asset strategy, acting as as a cornerstone investment.
The mandate is focused on delivering local impact, targeting investments in renewable energy in the counties of Dorset, Somerset, Avon, Cornwall, Devon, Wiltshire, Oxfordshire, Buckinghamshire and Gloucestershire.
It will target investments in a wide range of renewable energy technologies, including in traditional sectors of solar PV and wind, and innovative energy transition sub-sectors such as battery storage and green hydrogen production
Schroders said it represented the largest-ever commitment by UK local government pensions into place-based and locally focused renewable energy infrastructure.
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