Climate change reporting and the UKRF
Why is climate change being considered by the pension scheme?
The key responsibility for pension fund trustees is to ensure members’ benefits are paid. The Trustee of the Barclays Bank UK Retirement Fund (‘the UKRF’ or ‘the Fund’) sees climate change as a key risk to the security of members’ benefits. Nevertheless, the global response to climate change presents an opportunity for the Fund to make sound investments, which could provide a financial return to the Fund and support efforts to address the risks of climate change.
How is the UKRF reporting on climate change governance and decision making?
The Trustee of the UKRF has produced its second report following the recommendations of the Task Force on Climate-related Financial Disclosures (‘TCFD’), created by the Financial Stability Board; an international body that monitors and makes recommendations about the global financial system. The Trustee’s latest TCFD report covers the period from 1 October 2022 to 30 September 2023.
The report sets out progress made over the year to 30 September 2023 in relation to climate change governance and decision making, and against the Trustee’s ambitions to reduce emissions. More information on the Trustee’s Responsible Investment policy can be found on the Responsible Investment webpage.
Climate-related risks and opportunities
The Trustee recognises that the global transition to a low-carbon economy is outside the control of the UKRF. The Trustee can, however, consider climate-related risks and opportunities to inform the decisions it makes about the Fund and how it invests.
The Fund is exposed to two key groups of climate-related risks - physical risks and transition risks.
- Physical risks are those which relate to the direct, tangible impacts of climate change on the world. Examples include extreme weather events and longer-term sustained rises in temperature.
- Transition risks are those that arise as individuals, businesses and societies take action to lower emissions and limit global warming. The severity of any impact of transition risks will depend on whether the transition is orderly or disorderly.
The global response to climate change may also present opportunities. As the world adapts to climate change and aims to limit the impacts as much as possible, new technologies will require funding on a large scale. Large investors, such as the Fund, could be well placed to provide this investment and benefit from the returns generated.
As part of its first TCFD report, the Trustee considered three different future climate scenarios and how the UKRF’s assets and Defined Benefit liabilities could be impacted by each. More information can be found in the full TCFD report.
What is the UKRF doing to address climate change risks?
The Trustee of the UKRF, like many other pension fund trustees, businesses, and governments, is taking steps to reduce the impact of climate change and manage the risks climate change poses. For example, the Trustee is aiming to align the Fund’s investments with the Paris Agreement. The Paris Agreement is an international agreement to limit global warming to well below 2°C, and preferably less than 1.5°C, compared to pre-industrial levels.
In order to do this, countries must reduce their greenhouse gas (‘GHG’) emissions to ‘net zero’ by 2050. Achieving net zero means that GHG emissions put into the atmosphere are equal to those taken out.
GHG emissions are emissions that trap heat in the Earth’s atmosphere. These emissions are released through a variety of processes, such as the burning of fossil fuels for energy.
In 2021, the Trustee announced its ambition to achieve net zero carbon emissions from the UKRF’s investment portfolio by 2050 and to halve its emissions intensity by 2030. To achieve this, the Trustee is increasingly looking to invest the assets of the UKRF in companies which are adapting their businesses to align with the goals of the Paris Agreement. The Trustee believes this is in the best financial interests of the Fund and its members.
This is a long-term journey and the Trustee of the UKRF is already…
Developing the Trustee's knowledge and understanding of climate-related risks and opportunities and integrating climate-related investment principles into the Fund’s risk management framework.
Participating in the IIGC Asset Owner Alignment Working Group, which aims to support asset owners, investment consultants and asset managers with a consistent approach to the incorporation of climate stewardship.
Undertaking stewardship activity, including monitoring voting activities (delegated to investment managers) to encourage investee companies to take a long-term, responsible approach to business strategy. Significant votes in the year included voting in favour of approving the Shell Energy Transition Progress (vote passed) and against rescinding Chevron's Scope 3 GHG Reduction proposal (vote not passed).
Applying targeted engagement with the Fund's investment managers focused on decarbonisation amongst high emitting assets.
The Trustee’s ambitions
To support the Trustee’s ambition of net zero by 2050, the Trustee has set an interim ambition to reduce its emissions intensity by 50% by 2030 as shown below:
2030
50% reduction in greenhouse gas emissions intensity
In line with the goals of the Paris Agreement, the Trustee aims to reduce greenhouse gas emissions from the UKRF's portfolio of investments by at least 50% by 2030.
Ongoing
Improved climate data coverage
As disclosure of climate-related risks and opportunities is a new and emerging area for companies, there are challenges in sourcing and consistently recording the data. For example, within the DB Section of the UKRF, the Trustee is currently only able to collect emissions data for approximately 68% of the investment portfolio. The Trustee will be looking for investment managers to achieve better quality data and coverage of the UKRF’s portfolio (especially for certain asset classes) over time, which will allow better tracking of progress to lower carbon emissions.
2050
Net zero greenhouse gas emissions
In line with the goals of the Paris Agreement, the Trustee aims to reach net zero greenhouse gas emissions from the UKRF’s portfolio of investments by 2050.
More information about the Trustee’s climate-related targets and the different types of carbon emissions is available at Committed to Net Zero.
How the Trustee is turning its ambitions into action
The Trustee has a plan to reach its climate-related ambitions, which is structured around four areas and reflects the TCFD framework. The following graphic shows the actions currently being taken by the Trustee.
Governance
The Trustee is managing risks and opportunities from climate change by:
- Integrating climate change within the UKRF's risk management framework.
- Considering climate when setting strategies, selecting investment managers and monitoring ESG and stewardship activities.
- Using active stewardship of investments, including engagement and disclosure, to influence better managament of climate change.
Metrics and targets
The Trustee is measuring and monitoring the impact of climate change by:
- Actively working with investment managers to enhance data quality to achieve data coverage.
- Selected metrics to monitor and identifying actions to take, like engaging with investment managers and considering alternative investment options.
Strategy
The Trustee has developed an action plan for climate change by:
- Assessing the impact of climate-related risks on the UKRF's climate and investment policy.
- Integrating environmental, social and governance (ESG) considerations and climate into the UKRF's investment processes, and avoid certain risks like cluster weapons.
- Using models and qualitative analysis to understand how different climate scenarios could impact the UKRF's investments, liabilities and sponsor covenant over time and identifying areas of focus and potential actions to take.
Risk management
The Trustee is responsible to climate change by:
- Managing risk and taking advantage of opportunities for climate change.
- Ensuring it undertakes training to improve skills and knowledge on climate change, and joins relevant collaboration organisations and discussions.
- Using influence to push for the transition to net zero, through stewardship and engagement.
- Setting onjectives and monitoring the Fund's advisers, as well as the service provided by those advisers (Including investment managers).
Tracking progress against the Trustee’s ambitions
A key part of the Trustee’s strategy is to monitor progress as it takes steps to reduce the impact of climate change and manage climate-related risks. When measuring progress against its net zero ambitions, the Trustee considers the UKRF’s absolute emissions and emissions intensity against a 31 December 2020 baseline position ( the ‘baseline’ The baseline is the reference point against which the Trustee measures progress against its climate-related ambitions ) for the DB and DC sections. The baselines were updated in the year The Trustee previously calculated a base level of the emissions intensity and absolute emissions against which its interim 2030 target and long-term 2050 target could be tracked and assessed. This was calculated prior to widely accepted industry guidance being issued. In the year to 30 September 2023, the Trustee has recalculated its baselines to reflect industry best practice. to reflect industry best practice. Emissions intensity has been measured based on listed credit assets for the DB section of the Fund (22% of DB assets) and the Default Lifestyle ranges for the DC section of the Fund (65% of DC assets). The Trustee will consider incorporating a greater proportion of assets in its emissions intensity baselines in future years.
Progress made to date towards the Trustee’s 2030 ambitions is set out below.
Trajectory to the Trustee’s 2030 ambitions (DB & DC)
Emissions intensity
(tonnes CO2/£m invested)
- DB Emissions intensity
-
DB 2030 ambition
(50% reduction against baseline)
- DC Emissions intensity
-
DC 2030 ambition
(50% reduction against baseline)
Trajectory to the Trustee’s 2030 ambitions (DB)
33.6%
DB reduction from 2020 - 2023
Trajectory to the Trustee’s 2030 ambitions (DC)
51.2%
DC reduction from 2020 - 2023
A snapshot of the UKRF’s carbon footprint
The UKRF had nine sections with total assets of approximately £25bn as at 30 September 2023, broadly split between £23bn in the DB Section of the Fund and £2bn in the DC Section. You can find more information about the different sections of the Fund here.
The Trustee has selected the following four metrics to assess the UKRF’s climate-related risks and opportunities.
Metric |
|
|---|---|
Metric 1 - Absolute Emissions |
Total absolute carbon equivalent emissions that are attributable to the investment portfolio. |
Metric 2 - Emissions intensity |
How carbon efficient the investment portfolio is per million pounds invested. |
Metric 3 – Data quality |
The proportion of the investment portfolio that has emissions data to determine the absolute emissions and emission intensity metrics. |
Metric 4 – Portfolio alignment |
The proportion of the investment portfolio that is invested in companies which have an SBTi approved pathway to reduce their GHG emissions consistent with the goals of the Paris agreement – limiting global warming to 1.5°C above pre-industrial levels. |
Absolute emissions and emissions intensity are measured and monitored for Scope 1, Scope 2, and Scope 3 emissions. More information can be found in our Newsroom article on carbon emissions.
SCOPE 2
Indirect GHG emissions from the generation of purchased energy
SCOPE 1
Direct GHG emissions from owned or controlled sources
SCOPE 3
All indirect emissions (not included in Scope 2) that occur in the value chain
The challenges faced
The reporting of GHG emissions is a developing area for companies and investors and there remain challenges around the availability and quality of emissions data. As a result, the Trustee can only currently collect data for part of the UKRF’s portfolio. To help improve the availability and robustness of climate data, the Trustee is working with its investment managers and its advisors and has carried out its own accuracy and reasonableness checks. This includes raising queries around any significant differences between source data, unexplained gaps in data, or unexplained data trends. In the future, the Trustee notes that the UKRF’s reported carbon emissions may increase as data coverage and reporting improve. As such, the UKRF’s reported emissions may initially increase before they decrease.
Another challenge is the modelling and assumptions used for climate scenario analysis. There is inherent uncertainty in how climate-related risks and resultant opportunities will play out and the models are yet to capture some key aspects of real-world climate impacts. This could mean the resulting scenarios currently understate the potential range of outcomes.
The Trustee acknowledges that with better data coverage and improved methodologies and tools, it will be better able to track its progress to lower carbon emissions. Therefore, a real focus for the Trustee is obtaining as much decision-useful information as possible to assess risks and consider possible future outcomes. The Trustee sees this as essential on its journey to achieve its net zero ambition.
DB metrics at a glance
The figure below is a snapshot of the UKRF’s DB metrics as at 30 September 2023, and measures progress against the previous year.
The metrics are based on the data available at the relevant time (excluding LDI for the emissions-based metrics). The emissions-based metrics relate to funds covering 36.1% of the DB assets and the data quality metric relates to funds that make up 68.7% of the DB assets. 2023 was the first year the Trustee reported on its Scope 3 emissions and, therefore, there is no available comparison to the prior year.
DB 2022 to 2023
Absolute emissions
Scope 1 & 2
3.9%
2023: 290,226
2022: 301,975
Fall in market valuations offset by increased data coverage
Absolute emissions
Scope 3 (tCO2e)
First year reporting
Emissions intensity
Scope 1 & 2
11.9%
2023: 45.7
2022: 40.8
Impacted by changes in exchange rates, market valuations and absolute emissions
Emissions intensity
Scope 3 (tCO2e/£m)
First year reporting
Data quality Scope 1 & 2
15.7%
2023: 42.4%
2022: 26.7%
Increased with data being sourced directly from investment managers
Data quality Scope 3
First year of reporting
Portfolio alignment
14.6%
2023: 20.8%
2022: 35.4%
Increased number of portfolios with alignment data available, but lower alignment in those portfolios
DC metrics at a glance
The figures below are a snapshot of the UKRF’s DC metrics as at 30 September 2023, based on the data available at that time, and measure progress against the previous year.
The results for the DC section relate to five funds covering the Default Lifestyle ranges and two popular arrangements, which equate to over 90% of the value of the DC investment assets. Note an additional fund has been included in this year’s disclosures, which has contributed to an increase in absolute emissions.
DC 2022 to 2023
Absolute emissions
Scope 1 & 2
102.4%
2023: 50,656
2022: 25,026
Increase in market valuations, increased data coverage and a further fund in scope for 2023
Absolute emissions
Scope 3 (tCO2e)
First year reporting
Emissions intensity
Scope 1 & 2
12.7%
2023: 53.2
2022: 47.2
Impacted by changes in exchange rates, market valuations and absolute emissions
Emissions intensity
Scope 3 (tCO2e/£m)
First year reporting
Data quality Scope 1 & 2
26.0%
2023: 84.6%
2022: 58.5%
Increased with data sourced directly from investment managers and further fund in scope for 2023
Data quality Scope 3
First year reporting
Portfolio alignment
23.1%
2023: 31.6%
2022: 8.6%
Increased alignment and number of portfolios with alignment data available.
More information on the metrics data and supporting details can be found in the full TCFD report.
The Trustee’s strategy is evolving
The Trustee is focused on evolving not just how it reports, but how it uses the information to inform its investment and funding strategy. Areas of focus include:
- Enhancing its data and reporting as data availability, methodologies and analytical tools develop;
- Continuing to widen the scope of the Trustee’s ambition to include emissions of more of the UKRF’s portfolio;
- Evolving scenario analysis in line with industry best practice to better reflect the extent and interaction of different climate risks to inform more meaningful decision making;
- Further integrating climate data into investment decision making;
- Increasing engagement and setting higher expectations for investment managers and the companies the Fund invests in to reduce emissions, and where appropriate, encouraging further action.
To find out more about the Trustee’s approach to climate-related risks and opportunities, view the full TCFD report.