Rachel Elwell: engagement and collaboration ‘key to emission reductions’

The CEO of one of the largest local government pension pools in the UK has told Net Zero Investor that collaboration and engagement with policymakers, regulators and companies across the industry are key to achieving “real-world reductions in emissions”.

Rachel Elwell, CEO of the Border to Coast Pensions Partnership, said that achieving net zero was not just about companies aligning their investment portfolios to the goal, but using collective power to initiate change. “The really important thing here is that what needs to be achieved is real-world reductions in emissions,” she said.

“[It is] being able to get across the difference between making a portfolio net zero, and actually using the power of our collective voice, expertise and place in the industry to try to influence people such as organisations, regulators and policymakers to do the things that we need to have a real-world effect.”

Border to Coast is one of eight Local Government Pension Scheme (LGPS) pools in the UK and has pledged to achieve net-zero emissions by 2050 or sooner.

The LGPS is one of the largest pension schemes in the UK, with more than 6.1m members working in local government or for other employers that participate in the programme. Border to Coast is the representative of 11 partner funds with £60bn in total assets and is responsible for managing £38.3bn of those assets.

Elwell stressed that collaboration throughout the industry was essential to create an impact on climate change. She highlighted the partnerships that have already been established between asset owners and managers, such as Climate Action 100+ and the Transition Pathway Initiative.

“But, because it's such a cross-society problem, it's not something that in isolation any one individual or party can do anything about. We've really got to work collaboratively to come together with this one,” she added.

Engagement advocacy

Border to Coast published its Net Zero Implementation Plan on 5 October. It outlined that the UK pensions pool has reduced the carbon emissions of its portfolios by 50% on 2019 levels and aims for a reduction of 66% by 2030.

Elwell outlined that engagement between investors and companies on environmental, social and governance (ESG) factors is an important aspect of Border to Coast’s strategy to achieve its net-zero targets. The UK pension pool has already actively engaged with 73% of its “top emitters” and aims to engage with 100% by 2030.

She said: “I think it's really important that shareholders are saying, ‘we need you to address this [net zero] and we're going to hold you to account in how you're addressing it’.”

Responsible investment focus

Border to Coast’s roadmap to net zero heavily focuses on responsible investment, assessing whether investment decisions have got a “longer-term horizon” and analysing their climate risks.

Elwell noted that this “long-term investment horizon” is “fundamental” for Border to Coast. “An asset owner needs to be thinking about ESG as risk factors that might be material in their investment decision making.

“And thinking about those risk factors in our investment decision making is an absolutely vital part of getting to net zero, whether that is managing the risks for some of our portfolio or it's identifying opportunities that can have an impact.”

An example of this is Border to Coast’s Climate Opportunities portfolio, which targets investments involved in the transition to a low-carbon economy and has £1.35bn of commitments from partner funds. These opportunities include investments in solar and wind farms, carbon capture and hydrogen fuel.

Net-zero challenges

The roadmap also outlined that Border to Coast has set emission-reduction targets for 60% of its overall assets under management. However, the UK pensions pool is yet to set net-zero targets for private markets assets, sovereign bonds and multi-asset credit investments, which make up the remaining 40%.

Elwell said this was partly due to the absence of sufficient data available specifically on sovereign debt and Scope 3 emissions (indirect emissions that occur in the value chain of the reporting company).

“There's a huge amount of work to be done across companies to be able to do things like telling us what their Scope 3 emissions are, as Scopes 1 and 2 are quite well understood,“ she said.

The data available from Scopes 1 and 2 is focused on traditional oil, gas, steel and shipping. However, Elwell said that when Scope 3 data becomes available there may be a “shift” in who asset owners and managers choose to engage with.

“Going forward, I think we’ll start to see challenging of some of the big technology providers, because actually the users of their products have got quite a heavy carbon footprint,” she continued.