Executive summary

The Trustee has integrated the consideration of climate-related risks into its investment, funding and risk processes and documentation. This includes a well-developed policy on stewardship, including the impact of climate change, as outlined in its Responsible Ownership Policy (ROP). The ROP describes the Trustee’s approach to voting and engagement, the results of which are reported in the Fund’s Implementation Statement, which is produced annually.

The Trustee has outlined how it integrates climate-related risks within the Fund’s overall strategy.

Trustee directors and the investment team supporting the Trustee undertake periodic training on responsible investment to understand how Environmental, Social and Governance (ESG) factors, including climate change, may impact the Fund’s assets and liabilities.

Trustee process for identifying and assessing climate-related risks

The Trustee has established a process to identify, assess and manage the climate-related risks that are relevant to the Fund. This is part of the Fund’s wider risk management framework and is how the Trustee monitors the most significant risks to the Fund to achieve appropriate outcomes for members.

• Qualitative assessment

  The first element is a qualitative assessment of climate-related risks and opportunities which is prepared by Aon and reviewed by the Trustee.

• Quantitative analysis

  The second element is quantitative in nature and is delivered by means of climate change scenario analysis, which is provided by Aon and reviewed by the Trustee.

Both qualitative and quantitative analysis give the Trustee a clear picture of the climate-related risks that the Fund is exposed to. Where appropriate, we distinguish between transition and physical risks. All risks and opportunities are assessed with reference to the time horizons that we have identified as relevant to the Fund.

When prioritising the management of risks, the Trustee assesses the materiality of climate-related risks relative to the impact and likelihood of other risks to the Fund. This helps the Trustee focus on the risks that pose the most significant impact.

Trustee process for managing climate-related risks

The Trustee recognises the long-term risks posed by climate change and has taken steps to integrate climate-related risks into the Fund’s risk management framework.

The Trustee has taken the following steps to integrate climate-related risks into their risk management framework and processes.

Assessing our managers

As part of the assessment of the managers’ policies and processes to assess climate-related risks, the Trustee has posed “top” questions as outlined in guidance from the Pensions Climate Risk Industry Group to its investment managers.

The questions were designed to assist the Trustee with its assessment of each manager’s capabilities and approach to climate management and focused on areas such as TCFD reporting, manager’s ability to conduct climate scenario analysis, engagement and escalation policies, manager’s ability to provide carbon related data and align their strategies to a particular temperature level.

28 managers were asked to answer questions regarding their processes for identifying, assessing, and managing climate-related risks. Below summarises the responses from the most material investment managers.

Note: The Fund had reduced its allocation to public equity investments, hence the number of total managers has decreased since the last year’s reporting period.

• Net Zero

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  17 out of 28 managers (72.0% of total AUM) have committed to net zero emissions by 2050 or aligned their portfolios with Paris Alignment or Net Zero Asset Managers Initiative.

• SBTi

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  Seven managers across alternative equity and credit reported the proportion of holdings aligned with the Science Based Targets initiative (SBTi). For example, 48% of holdings in the PIMCO credit portfolio have either committed to or are aligned with Science Based Targets (SBTs).

  New Forest, a manager within the alternative equity asset class is currently working towards the SBTs.

  Seven out of 28 (66.7% of total AUM) managers have provided data relating their underlying portfolios’ SBTi.

• TCFD

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  12 managers have published their TCFD reports on a public platform. Many of the remaining managers are either working towards publishing their TCFD reports in 2023 and/or publicly support the TCFD recommendations.

  12 out of 28 (69.0% of total AUM) managers completed their climate risk disclosures in line with TCFD guidance and made their reports publicly available.

• Industry initiative

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  Over 70% of managers are signatories to various inventor-led industry initiatives related to addressing climate change, such as Paris Aligned Investment Initiative, Global ESG Benchmark for Real Assets (GRESB), IIGCC, Net Zero Asset Managers Initiative (NZAMI) etc.

  Over 70% of managers are signatories to various investor-led industry initiatives related to addressing climate change.

Integration into overall risk management

The Trustee considers and manages climate-related risks within its wider investment strategy to ensure that the overall investment objective and its principal duty to Fund members (to pay pensions as they fall due) remains achievable. The Trustee ensures that climate-related risks are embedded into the Fund’s overall risk management in two main ways.

1. Governance approach to integrating climate-related risks

   As outlined in the Governance section, the Trustee Board and its various committees have clearly defined areas of responsibility for ESG and climate risk. In particular, the ESGC is responsible for developing and overseeing the approach to responsible ownership and climate management and reporting while the Risk and Audit Committee (RAC) is responsible for monitoring the employer covenant taking into account relevant factors including ESG and climate. These arrangements ensure that climate risk is considered alongside the Trustee’s other risk considerations so that they can be identified, assessed and managed in a proportionate way, coherently with the Fund’s other risks.

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   Where significant concerns arise, these will be addressed by the ESGC, or other committee as relevant, on a case-by-case basis and appropriate actions are agreed.

   The Trustee Directors and RIEL have arranged to receive regular training on climate-related issues, at least annually, to ensure that they have the appropriate degree of knowledge and understanding of these issues to support good decision-making. The Trustee also expects its advisers to bring important and relevant climate-related issues and developments to its attention in a timely manner.

   The expectation is that the Trustee’s ESGC will use the analysis conducted in 2022 as a basis for monitoring investment manager progress towards the Trustee’s stated climate objectives. The ESGC will escalate any material climate-related developments to the Asset and Liability Committee (ALCO), the RAC or the Trustee Board, as appropriate, as and when they arise.

   The Trustee also maintains a regular dialogue with the employer, which includes issues related to climate risk, both in relation to the Fund itself and in relation to the employer covenant.

2. Investment approach to integrating climate-related risks

   The climate scenario analysis undertaken for the Trustee considered the funding position based on the effect of climate risk on the Fund assets and liabilities. The Trustee has determined that no change is currently required to investment strategy based on the results of its scenario analysis. This is one of the methods by which the evaluation and consideration of climate risk is integrated into its framework for investment strategy decisions.

   Climate risk considerations are integrated into asset-level decision making – as appropriate to each asset class – through the Trustee’s stewardship and application of each investment manager’s policy on climate change which is evaluated by the Trustee. The Trustee focuses on the engagement with the managers to encourage higher SBTi verified net zero targets for the appropriate asset classes. Further detail can be found in the Metrics and Targets pillar.