Avon Pension Fund sets ambitious climate change targets and moves £780m into Paris-Aligned Benchmark

By Nick Batten on 7 October, 2021

To ensure the Avon Pension Fund maintains its position at the forefront of climate-aware investing, it has announced that it will be transitioning its entire legacy low carbon equity strategy (£780m) into the recently launched Paris Aligned Benchmark (PAB) developed by FTSE Russell and Brunel Pension Partnership. 

As well as clearly defined activity-based exclusions in coal, oil and natural gas, the next-generation index is designed to reward companies that generate green revenues and those that can demonstrate alignment with the Paris Agreement goals. By investing in the PAB the Fund expects to deliver annual emissions reductions of at least seven percent per annum.

In additional moves to contribute to real-world emissions reductions, the Fund has introduced two new climate change targets that reflect its ambition to become net-zero by 2050 and a need to accelerate this trajectory over the next 10 years. The targets will see the Fund reduce its absolute emissions in the equity portfolios by 43% by 2025 and 69% by 2030 compared to its 2020 baseline emissions.

The Avon Pension Fund administers the Local Government Pension Scheme (LGPS) for over 120,000 members across 440 employers in the former Avon area.

Recognising the inherent challenges in managing the financial risk of climate change in emerging markets will also see the Fund reduce its allocation to the asset class, choosing instead to concentrate its engagement efforts in developed markets where most of its capital is allocated. In these markets, it can exert a greater influence and significant progress is already being made in collaboration with the Fund’s partners including Brunel Pension Partnership, ClimateAction 100+ and Institutional Investors Group on Climate Change.

Commenting on the decision, Avon Pension Fund Committee Chair Councillor Paul Crossley, said, “With the progress Avon has made so far it is essential that we maintain momentum and continue to demonstrate leadership at this critical time. Protecting our assets for the benefit of our members, as well as managing the risks and opportunities that climate change presents, is an extremely complex task but with the most recent changes to our investment strategy I’m confident that we are taking the positive steps necessary to deliver on our pledge to be Paris-aligned across our investment portfolio.”

Shaun Stephenson-McGall, Avon Pension Fund Investment Panel Chair, added, “This is the culmination of a lot of hard work on the part of the Committee and clearly demonstrates how we are actively responding to our members’ priorities. These changes mark a turning point in the Fund’s approach to climate change as we move towards solutions that offer credible pathways to net zero.”

Pictured above: Avon Pension Fund is invested in Springbok – a 448 Megawatt-dc solar development in Kern County, California. It is one of the largest solar developments in the world.