Brightwell’s Wyn Francis: ‘the transition is on the verge of accelerating’
As part of our new podcast series, NZI with Mona, Net Zero Investor sat down with Brightwell CIO Wyn Francis to discuss the challenges of decarbonising a fixed-income heavy portfolio.
UK pension fund Brightwell, formerly known as the BT Pension Scheme (BTPS), has an ambitious climate target, it aims to be net zero by 2035. This strategy is mainly because the fund, which manages around £37bn in assets, is a mature defined benefit fund as by 2035, all of its members will be retired
“As part of our strategy we are aiming to be cashflow matched by 2035,” explains Francis.
But that presents its own challenges, not only does the fund have to execute a drastic overhaul if its asset allocation. As at the time of writing, it still holds almost a third of its portfolio in equities and has investments in illiquid assets.
However, Francis believes that the shift towards fixed income should make it easier to reduce the portfolio’s carbon footprint. “If we look at the overall pool of assets to begin with, we are very comfortable that we can take most of the emissions out with a very concentrated part of the asset pool. And we have seen quite a considerable reduction as we de-risked over the past two to three years,” he argues.
Being pushed on the limited ability to exercise stewardship in bonds, he acknowledges that "as we build up a bond or bond like portfolio, the influence we can exercise over those assets changes”, but we are currently exploring with our managers how the fund can continue to exert pressure on the companies we invest in.
Having said that, Francis argues that he is already seeing significant signs of progress: “Of the organisations that are in our portfolio and that we monitor, more and more are stating their ambitions, the pathways are becoming much more clearly defined. I am also optimistic that the [energy] transition is on the verge of accelerating,” he believes.
Francis points out that the marginal costs of renewables such as wind and solar are now cheaper than those of some fossil fuels. “From an investment perspective, when you reach that tipping point, you will see an acceleration into those technologies and therefore an increase in take up,” he predicts.
This interview is part of our new podcast series, NZI with Mona. The full podcast can be accessed here.