The Trustee has set a long-term target of achieving a buy-in. A buy-in is a scheme investment where an insurer pays the scheme an income that matches the benefits the scheme pays to members. This gives the scheme additional protection against future demographic risk and investment risk, and further improves the security of member benefits. The Trustee completed a buy-in within the AA Section of the Fund in 2023.

The strategy means that over time the Trustee will switch out of the Fund’s existing portfolio of assets in exchange for buy-in contracts with one or more UK insurers. This process will have a fundamental impact on the way in which the Trustee is able to manage environmental, social and governance (ESG) issues in its investment programme.

Where the Trustee continues to hold assets that it has control or influence over directly or through one of its investment managers, it will work to apply its ROP and ensure as far as it can that ESG issues remain a priority. Where liabilities have been insured with buy-in contracts, the Trustee no longer has control over the assets it transfers to the insurer or any other assets on the insurer’s balance sheet. Therefore, the Trustee intends to focus on the governance within the prospective insurers, recognising that they are subject to a different regulatory regime than a pension scheme. In choosing insurers, the Trustee will seek appropriate disclosure commitments in relation to ESG issues and after completing any buy-ins will monitor the insurer’s ESG approach on an ongoing basis.

The Trustee continues to refine its climate disclosures. In 2023 the Pensions Regulator (TPR) carried out a review of pension scheme climate reports that it had received in the previous year and the Trustee has taken into account the observations and recommendations from that review. TPR has stated that it expects trustees to follow the Department for Work and Pension’s (DWP) guidance, which was updated in June 2022, and report on a new portfolio alignment metric whilst considering scope 3 emissions. The Trustee’s latest climate disclosures take these requirements into account.

In terms of portfolio activity, the Trustee continues to invest in its joint venture to build high quality net zero retirement homes across the UK. The Trustee’s environmentally friendly 22-hectare greenhouse in Cambridgeshire is producing a significant amount of UK fresh vegetables. The Fund’s diverse renewable energy portfolio continues to provide a stable source of alternative electricity and gas to the grid. The new recycling and waste to energy plant in Wales is fully operational. In the listed debt portfolio, there has been a programme of engagement with 188 companies on a range of ESG issues.

The 2023 Climate Disclosures are available here. There has been a significant increase in reported greenhouse gas (GHG) emissions of Fund investments. This is because the Trustee has been able to get emissions data for some investments where it was previously not available, increasing the emissions included in the reporting, rather than reflecting a deterioration in portfolio environmental performance. Notwithstanding the Trustee’s strong desire to manage climate risk, the strategy of getting the portfolio ready for a buy-in, which may require the Fund to exit some investments earlier than would otherwise have been the case, means that Fund climate risk and carbon footprint will change over time as a consequence and could increase temporarily. As noted above, the Trustee will take ESG issues into account when selecting and monitoring insurers. The Trustee will not be able to control what assets insurers hold or how insurers manage ESG issues. Accordingly, for any assets used to purchase buy-ins, the Trustee’s ability to influence GHG emissions attributable to the Fund will be limited and the approach will shift to one of monitoring and engaging with those insurers.