Metrics and Targets
Metrics help to inform the Trustee’s understanding and monitoring of the Fund's climate-related risks. Quantitative measures of the Fund's climate-related risks, in the form of both greenhouse gas (GHG) emissions and non-emissions-based metrics, help the Trustee to identify, manage and track the Fund's exposure to the financial risks and opportunities climate change will bring.
Executive summary
The Trustee gathered the carbon metrics data from a range of different sources, including its investment managers and third-party data vendors. As required, the Trustee has, as far as it is able, collated the data for total GHG emissions, carbon footprint, data quality and the portion of the assets with net zero targets which are verified by the Science Based Targets initiative (SBTi). The Trustee has also chosen to report on an implied temperature rise measure, which is an additional metric selected this year.
The Trustee is keen to understand the carbon emissions in the Fund’s portfolio, and notes that the data availability has remained comparable to the previous year’s reporting on equivalent assets except for credit assets where availability improved in 2022. As per the Trustee’s expectation, the overall GHG emissions increased. The Trustee has examined this and does not view this as a “real” increase, and notes that the increase is an expected output as the availability of data expands, and as there is a “settling down” in the methodologies used for evaluating emissions for investments. In addition, managers were able to provide Scope 3 emission data which contributed to the overall emissions “increase”. More detail on how emissions are defined is provided below.
Our climate-related metrics
The Trustee uses some quantitative measures to help it understand and monitor the Fund’s exposure to climate-related risks.
Measuring GHG emissions related to the Trustee’s assets is a key way to assess its exposure to climate change. Aon collected information from the Fund’s managers on their GHG emissions. Aon collated this information to calculate the following climate-related metrics for the Fund’s portfolio of assets.
Measuring GHG emissions
Measuring GHG emissions is a key way for pension schemes to assess their exposure to climate change. GHGs are produced by burning fossil fuels, meat and dairy farming, and some industrial processes. When GHGs are released into the atmosphere, they trap heat in the atmosphere causing global warming and contributing to climate change.
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GHGs are categorised into three types or ‘Scopes’ by the Greenhouse Gas Protocol, the world’s most used GHG accounting standard.
All direct emissions from the activities of an organisation which are under their control; these typically include emissions from their own buildings, facilities and vehicles.
These are the indirect emissions from the generation of electricity purchased and used by an organisation.
All other indirect emissions linked to the wider supply chain and activities of the organisation from outside its own operations – from the goods it purchases to the disposal of the products it sells.
Scope 3 emissions are often the largest proportion of an organisation’s emissions, but they are also the hardest to measure. The complexity and global nature of an organisation’s value chain make it hard to collect accurate data. For more information, please see the appendix.
The metrics the Trustee uses
- Total GHG emissions
- Carbon footprint
- Data quality
- Portion of portfolio SBTi aligned
- Implied temperature rise
The GHG emissions associated with the portfolio. It is an absolute measure of carbon output from the Fund’s investments and is measured in tonnes of carbon dioxide equivalent (tCO2e).
This year the Trustee was able to obtain Scopes 1 & 2 and Scope 3 emissions from the managers separately.
Carbon footprint is an intensity measure of emissions that takes the total GHG emissions and weights it to take account of the size of the investment made. It is measured in tonnes of carbon dioxide equivalent per million pounds invested (tCO2e/£m).
This year the Trustee was able to obtain Scopes 1 & 2 and Scope 3 emissions from the managers separately.
A measure of the proportion of the portfolio that the Trustee has high quality data for (i.e., data which is based on verified, reported, or reasonably estimated emissions, versus that which is unavailable).
This has been selected on the basis that it provides a consistent and comparable measure of the level of confidence in the data.
This year the Trustee made less estimations as it relied on more data being provided directly by the managers. Please note some managers used estimates of their data, details of which are not shared as part of this document.
A metric which gives the alignment of the Fund’s assets with the climate change goal of limiting the increase in the global average temperature to 1.5℃ above pre-industrial levels.
It is measured as the percentage of underlying portfolio investments with declared net-zero or Paris-aligned targets that have been verified by the SBTi.
Implied temperature rise (ITR) is a forward-looking metric that considers the pledges, commitments and business strategy changes that underlying investee companies/issuers have made. It provides a prediction of the potential temperature rise over the rest of the century based on the activities of those companies and issuers as a temperature score.
This metric gives the alignment of the Fund’s assets with the climate change goal of limiting the increase in the global average temperature to 1.5℃ above pre-industrial levels.
It is measured as the potential global temperature rise associated with the GHG emissions from a portfolio, expressed in degrees Celsius.
Please note DWP guidance states that the trustee should not be aggregating the ITR, unless the same methodology has been used across the scheme's investments. We have relied on the individual manager data, hence the consistency of methodology cannot be guaranteed.
Methodology for Data Collection
The Trustee, supported by its adviser, Aon, collected the carbon emissions data using the industry standard Carbon Emissions Template (CET).
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The CET was developed by a joint industry initiative by the Pension and Life Savings Association (PLSA), Association of British Insurers (ABI) and Investment Association Working Group. The CET provides a standardised set of data to help pension schemes meet their obligations under the Climate Change Governance and Reporting Regulations, and associated Department for Work and Pensions’ (DWP) Statutory Guidance, and to help insurers and investment managers fulfil their obligations under the Financial Conduct Authority’s (FCA) new Environmental, Social and Governance (ESG) Sourcebook as set out in PS21/24.
When collecting the data, the Trustee also noted the following:
| Asset Class | Approach |
|---|---|
| Asset ClassPrivate Equity | ApproachThe managers were not able to provide this data. Carbon metrics data was estimated by Aon by applying MSCI equity sector carbon data to the managers sector breakdown as at 31 December 2022. Based on estimates, coverage is assumed to be 100%. |
| Asset ClassAlternative Equity | ApproachCarbon metrics data has been provided by the managers. Where total pooled fund emissions were provided, Aon inferred carbon footprint by dividing total emissions by the total pooled fund’s AUM. The calculated carbon footprint was then applied to the Trustee’s share of invested capital in the pooled fund to infer the Fund’s total GHG emissions. |
| Asset ClassOffsetting assets | ApproachThis data was provided directly by the managers. Carbon offsetting associated with forestry includes tree growth over the year and long-term storage in harvested wood products. Wind farm carbon avoidance includes carbon savings resulting from the energy generated by wind turbines. |
| Asset ClassTotal Credit | ApproachCarbon metrics data has been provided by the managers for majority of the mandates. Where total pooled fund emissions were provided, Aon inferred carbon footprint by dividing total emissions by the total pooled fund’s AUM. The calculated carbon footprint was then applied to the Trustee’s share of invested capital in the pooled fund to infer the Fund’s total GHG emissions. |
| Asset ClassProperty | ApproachCarbon metrics data has been provided by the managers for some mandates. Where total pooled fund emissions were provided, Aon inferred carbon footprint by dividing total emissions by the total pooled fund’s AUM. The calculated carbon footprint was then applied to the Trustee’s share of invested capital in the pooled fund to infer the Fund’s total GHG emissions. |
| Asset ClassInsurance | ApproachThis asset class was excluded due to lack of carbon data associated with the nature of this asset class. |
| Asset ClassHedging assets | ApproachThe manager provided carbon footprint for each mandate, which Aon then applied to the Trustee’s portfolio value to infer the Fund’s total GHG emissions. |
| Asset ClassCash | ApproachThe manager provided carbon footprint for each mandate, which Aon then applied to the Trustee’s portfolio value to infer the Fund’s total GHG emissions. |
The Fund’s climate-related metrics
The table below summarises reported carbon metrics over 2021 and 2022.
To ensure consistency of data across all asset classes the Trustee reported Scope 1 and 2 carbon emissions and Scope 3 emissions separately.
Key observations
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The Trustee acknowledges that the reported level of total GHG emissions have increased over the year considerably. This is in part attributed to the inclusion of Scope 3 emissions in the 2022 data calculation which were not included in the 2021 data. It also reflects the expanding availability of data and some changes in the methodologies used for evaluating emissions for some investments.
The reported carbon footprint per £ of assets (/carbon intensity) has also increased substantially, although the Trustee notes that this metric is sensitive to changes in the market value of the assets. The assets used to hedge the liabilities comprise mainly cash and gilts, and carbon emissions for these assets are currently assumed to be lower than for most other asset classes. The increase in the carbon footprint per £ of assets over the last year is largely because of significant falls in the value of those hedging assets.
Over the year, the Trustee divested from the quoted equity mandate, leaving fewer managers who have reported SBTi alignment data this year, resulting in a marginal decrease in the percentage of aligned assets in comparison to last year. Quoted equities also had the highest data quality and coverage associated with the underlying holdings, which has also reduced as part of the de-risking exercise.
These metrics capture defined benefit (DB) assets only, since the defined contribution (DC) assets are relatively immaterial and have been excluded from the analysis on materiality grounds.
| Year | Fund’s AUM (£) | Total Emissions (tCO2e) | Offset emissions (tCO2e) | Carbon Footprint (tCO2e/£m) | Data coverage (%) | SBTi Alignment1 (%) | ITR2 (℃) |
|---|---|---|---|---|---|---|---|
| Year2022 | Fund’s AUM (£)35.7bn | Total Emissions (tCO2e)3,797,737 (Scope 1 & 2) 3,682,040 (Scope 3) |
Offset emissions (tCO2e)-1,185,892(Scope 1 & 2) -82,921 (Scope 3) |
Carbon Footprint (tCO2e/£m)73.2*(Scope 1 & 2) 100.9 (Scope 3) |
Data coverage (%)83 | SBTi Alignment1 (%)20 | ITR2 (℃)1.9 – 3.7 |
| Year2021 | Fund’s AUM (£)51.9bn | Total Emissions (tCO2e)2,204,746 (Scope 1 & 2) Scope 3 data not available |
Offset emissions (tCO2e)-969,000(Scope 1, 2 and 3) | Carbon Footprint (tCO2e/£m)23.8*(Scope 1 & 2) Scope 3 data not available |
Data coverage (%)86 | SBTi Alignment1 (%)21 | ITR2 (℃)N/A |
| YearChange 2021 to 2022 | Fund’s AUM (£)-31% | Total Emissions (tCO2e)+72% (Scope 1 & 2) +100% (Scope 3) |
Offset emissions (tCO2e)+31% (Scope 1, 2 and 3) | Carbon Footprint (tCO2e/£m)+208% (Scope 1 & 2) +100% (Scope 3) |
Data coverage (%)-3% | SBTi Alignment1 (%)-1% | ITR2 (℃)- |
Source: Investment managers / Aon / MSCI. Data is as at YE 2021 and YE 2022 respectively.
1 SBTi alignment has been restated for 2021. This metric is based on assets excluding hedging assets, insurance, property and currency hedging assets. These assets were excluded on the basis of materiality and lack of SBTi appropriateness due to the nature of the asset classes.
2 ITR is a new metric which was not sourced during the first reporting year. ITR is presented as a range based on the manager responses. Please note that DWP guidance recommends not to aggregate ITR information unless consistent methodology has been used across the investment funds.
* These figures account for the offset emissions associated with the Fund’s investments in wind farms and forests.
Total GHG emissions
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The table below shows a more detailed breakdown of the emission data from each asset class across the four Sections of the Fund’s portfolio (where available). The Trustee notes that:
- Main and AA Sections have significant offsetting and carbon-avoiding assets (forests and windfarms) which reduce the total carbon emissions of the overall Fund’s portfolio by c. 48%.
- The carbon emissions for both the NWM and RBSI Sections are broadly comparable, with the slight difference due to their slightly differing asset allocation.
| Main Section (tCO2e) |
AA Section (tCO2e) |
NWM Section (tCO2e) |
RBSI Section (tCO2e) |
Total (tCO2e) |
||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Asset Class | Main Section (tCO2e)Scope 1 & 2 |
Main Section (tCO2e)Scope 3 |
AA Section (tCO2e)Scope 1 & 2 |
AA Section (tCO2e)Scope 3 |
NWM Section (tCO2e)Scope 1 & 2 |
NWM Section (tCO2e)Scope 3 |
RBSI Section (tCO2e)Scope 1 & 2 |
RBSI Section (tCO2e)Scope 3 |
Total (tCO2e)Scope 1 & 2 |
Total (tCO2e)Scope 3 |
| Private equity | Main Section (tCO2e) - Scope 1 & 2105,451 |
Main Section (tCO2e) - Scope 3- |
AA Section (tCO2e) - Scope 1 & 2- |
AA Section (tCO2e) - Scope 3- |
NWM Section (tCO2e) - Scope 1 & 2- |
NWM Section (tCO2e) - Scope 3- |
RBSI Section (tCO2e) - Scope 1 & 2- |
RBSI Section (tCO2e) - Scope 3- |
MTotal (tCO2e) - Scope 1 & 2105,451 |
Total (tCO2e) - Scope 3- |
| Alternative equity | Main Section (tCO2e) - Scope 1 & 2238,359 |
Main Section (tCO2e) - Scope 31,112,148 |
AA Section (tCO2e) - Scope 1 & 270 |
AA Section (tCO2e) - Scope 339,862 |
NWM Section (tCO2e) - Scope 1 & 20 |
NWM Section (tCO2e) - Scope 30 |
RBSI Section (tCO2e) - Scope 1 & 20 |
RBSI Section (tCO2e) - Scope 30 |
MTotal (tCO2e) - Scope 1 & 2238,429 |
Total (tCO2e) - Scope 31,152,010 |
| Total credit | Main Section (tCO2e) - Scope 1 & 21,646,625 |
Main Section (tCO2e) - Scope 32,478,434 |
AA Section (tCO2e) - Scope 1 & 248,769 |
AA Section (tCO2e) - Scope 344,437 |
NWM Section (tCO2e) - Scope 1 & 21,963 |
NWM Section (tCO2e) - Scope 3- |
RBSI Section (tCO2e) - Scope 1 & 23,468 |
RBSI Section (tCO2e) - Scope 3- |
MTotal (tCO2e) - Scope 1 & 21,700,824 |
Total (tCO2e) - Scope 32,522,871 |
| Property | Main Section (tCO2e) - Scope 1 & 235,893 |
Main Section (tCO2e) - Scope 37,050 |
AA Section (tCO2e) - Scope 1 & 2- |
AA Section (tCO2e) - Scope 3- |
NWM Section (tCO2e) - Scope 1 & 27 |
NWM Section (tCO2e) - Scope 387 |
RBSI Section (tCO2e) - Scope 1 & 22 |
RBSI Section (tCO2e) - Scope 322 |
MTotal (tCO2e) - Scope 1 & 235,902 |
Total (tCO2e) - Scope 37,159 |
| Hedging assets | Main Section (tCO2e) - Scope 1 & 21,398,335 |
Main Section (tCO2e) - Scope 3- |
AA Section (tCO2e) - Scope 1 & 227,926 |
AA Section (tCO2e) - Scope 3- |
NWM Section (tCO2e) - Scope 1 & 26,455 |
NWM Section (tCO2e) - Scope 3- |
RBSI Section (tCO2e) - Scope 1 & 22,492 |
RBSI Section (tCO2e) - Scope 3- |
MTotal (tCO2e) - Scope 1 & 21,435,208 |
Total (tCO2e) - Scope 3- |
| Cash | Main Section (tCO2e) - Scope 1 & 2280,806 |
Main Section (tCO2e) - Scope 3- |
AA Section (tCO2e) - Scope 1 & 2851 |
AA Section (tCO2e) - Scope 3- |
NWM Section (tCO2e) - Scope 1 & 2254 |
NWM Section (tCO2e) - Scope 3- |
RBSI Section (tCO2e) - Scope 1 & 211 |
RBSI Section (tCO2e) - Scope 3- |
MTotal (tCO2e) - Scope 1 & 2281,922 |
Total (tCO2e) - Scope 3- |
| Total (w/o offsetting) (2022) | Main Section (tCO2e) - Scope 1 & 23,705,470 |
Main Section (tCO2e) - Scope 33,597,632 |
AA Section (tCO2e) - Scope 1 & 277,616 |
AA Section (tCO2e) - Scope 384,299 |
NWM Section (tCO2e) - Scope 1 & 28,679 |
NWM Section (tCO2e) - Scope 387 |
RBSI Section (tCO2e) - Scope 1 & 25,973 |
RBSI Section (tCO2e) - Scope 322 |
MTotal (tCO2e) - Scope 1 & 23,797,737 |
Total (tCO2e) - Scope 33,682,040 |
| Offsetting assets (forests) | Main Section (tCO2e) - Scope 1 & 2-951,576 |
Main Section (tCO2e) - Scope 3-80,995 |
AA Section (tCO2e) - Scope 1 & 2-51,316 |
AA Section (tCO2e) - Scope 3-1,925 |
NWM Section (tCO2e) - Scope 1 & 2- |
NWM Section (tCO2e) - Scope 3- |
RBSI Section (tCO2e) - Scope 1 & 2- |
RBSI Section (tCO2e) - Scope 3- |
MTotal (tCO2e) - Scope 1 & 2-1,002,892 |
Total (tCO2e) - Scope 3-82,921 |
| Offsetting assets (wind farm) | Main Section (tCO2e) - Scope 1 & 2-183,000 |
Main Section (tCO2e) - Scope 3- |
AA Section (tCO2e) - Scope 1 & 2- |
AA Section (tCO2e) - Scope 3- |
NWM Section (tCO2e) - Scope 1 & 2- |
NWM Section (tCO2e) - Scope 3- |
RBSI Section (tCO2e) - Scope 1 & 2- |
RBSI Section (tCO2e) - Scope 3- |
MTotal (tCO2e) - Scope 1 & 2-183,000 |
Total (tCO2e) - Scope 3- |
| Total (w offsetting) (2022) | Main Section (tCO2e) - Scope 1 & 22,570,894 |
Main Section (tCO2e) - Scope 33,516,637 |
AA Section (tCO2e) - Scope 1 & 226,299 |
AA Section (tCO2e) - Scope 382,373 |
NWM Section (tCO2e) - Scope 1 & 28,679 |
NWM Section (tCO2e) - Scope 387 |
RBSI Section (tCO2e) - Scope 1 & 25,973 |
RBSI Section (tCO2e) - Scope 322 |
MTotal (tCO2e) - Scope 1 & 22,611,845 |
Total (tCO2e) - Scope 33,599,119 |
| Total (2021) | Main Section (tCO2e) - Scope 1 & 21,166,952 |
Main Section (tCO2e) - Scope 3n/a |
AA Section (tCO2e) - Scope 1 & 255,412 |
AA Section (tCO2e) - Scope 3n/a |
NWM Section (tCO2e) - Scope 1 & 210,106 |
NWM Section (tCO2e) - Scope 3n/a |
RBSI Section (tCO2e) - Scope 1 & 23,275 |
RBSI Section (tCO2e) - Scope 3n/a |
MTotal (tCO2e) - Scope 1 & 21,235,746 |
Total (tCO2e) - Scope 3- |
| YoY % change | Main Section (tCO2e) - Scope 1 & 2+120% |
Main Section (tCO2e) - Scope 3n/a |
AA Section (tCO2e) - Scope 1 & 2-53% |
AA Section (tCO2e) - Scope 3n/a |
NWM Section (tCO2e) - Scope 1 & 2-14% |
NWM Section (tCO2e) - Scope 3n/a |
RBSI Section (tCO2e) - Scope 1 & 2+82% |
RBSI Section (tCO2e) - Scope 3n/a |
MTotal (tCO2e) - Scope 1 & 2+111% |
Total (tCO2e) - Scope 3n/a |
Source: MSCI / Investment managers / Aon.
Note 1: Residual quoted equity portfolio was excluded from the analysis on the basis of materiality.
Note 2: Scope 3 emissions were not available in the 2021 reporting year.
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Year-on-year change
Scope 3 emissions is new data for all Sections as it is the first year of reporting on this metric.
In terms of Scope 1 & 2 emissions:
- Main Section has seen an increase driven by higher emissions and availability of data for credit assets. This year, the hedging assets portfolio manager was able to provide the emissions for the associated portfolios, which were higher than the estimated emissions used last year. Hedging assets make up the largest proportion of the assets, magnifying its contribution to higher emissions for the Fund as a whole.
- AA Section has seen a fall in its Scope 1 and 2 emissions due to lower emissions within the alternative equity, total credit and property asset classes. The Section also benefited from a relatively higher carbon offsetting associated with the investments in forests.
- Similarly, the NWM Section has seen a drop in the emissions due to lower emissions within total credit and property assets, however it has also seen a fall in emissions due to divestment from quoted equity securities.
- RBSI Section has seen an increase in the total emissions due to higher emissions associated with the hedging assets which make up the largest part of the portfolio.
Carbon footprint per asset class
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The table below summarises latest available carbon footprint (tonnes CO2e/£m invested) for the four Sections and each asset class. As previously stated, the Trustee has reported Scope 1 and 2 carbon footprint and Scope 3 carbon footprint separately.
| Asset Class | Main Section | AA Section | NWM Section | RBSI Section | ||||
|---|---|---|---|---|---|---|---|---|
| Asset ClassAssets as at 31/12/2022 (£m) | Main Section34,691 | AA Section765 | NWM Section154 | RBSI Section51 | ||||
| Asset Class | Main SectionScope 1 & 2(tCO2e/£m) | Main SectionScope 3(tCO2e/£m) | AA SectionScope 1 & 2(tCO2e/£m) | AA SectionScope 3(tCO2e/£m) | NWM SectionScope 1 & 2(tCO2e/£m) | NWM SectionScope 3(tCO2e/£m) | RBSI SectionScope 1 & 2(tCO2e/£m) | RBSI SectionScope 3(tCO2e/£m) |
| Asset ClassPrivate equity | Main Section - Scope 1&2(tCO2e/£m)124.0 | Main Section - Scope 3(tCO2e/£m)0.0 | AA Section - Scope 1&2(tCO2e/£m)- | AA Section - Scope 3(tCO2e/£m)- | NWM Section - Scope 1&2(tCO2e/£m)- | NWM Section - Scope 3(tCO2e/£m)- | RBSI Section - Scope 1&2(tCO2e/£m)- | RBSI Section - Scope 3(tCO2e/£m)- |
| Asset ClassAlternative equity | Main Section - Scope 1&2(tCO2e/£m)166.9 | Main Section - Scope 3(tCO2e/£m)623.4 | AA Section - Scope 1&2(tCO2e/£m)0.3 | AA Section - Scope 3(tCO2e/£m)150.1 | NWM Section - Scope 1&2(tCO2e/£m)- | NWM Section - Scope 3(tCO2e/£m)- | RBSI Section - Scope 1&2(tCO2e/£m)- | RBSI Section - Scope 3(tCO2e/£m)- |
| Asset ClassOffsetting asset (forests) | Main Section - Scope 1&2(tCO2e/£m)-2,019.6 | Main Section - Scope 3(tCO2e/£m)-144.2 | AA Section - Scope 1&2(tCO2e/£m)-3,221.2 | AA Section - Scope 3(tCO2e/£m)-120.9 | NWM Section - Scope 1&2(tCO2e/£m)- | NWM Section - Scope 3(tCO2e/£m)- | RBSI Section - Scope 1&2(tCO2e/£m)- | RBSI Section - Scope 3(tCO2e/£m)- |
| Asset ClassTotal credit | Main Section - Scope 1&2(tCO2e/£m)205.2 | Main Section - Scope 3(tCO2e/£m)471.7 | AA Section - Scope 1&2(tCO2e/£m)190.7 | AA Section - Scope 3(tCO2e/£m)173.8 | NWM Section - Scope 1&2(tCO2e/£m)46.0 | NWM Section - Scope 3(tCO2e/£m)- | RBSI Section - Scope 1&2(tCO2e/£m)65.4 | RBSI Section - Scope 3(tCO2e/£m)- |
| Asset ClassProperty | Main Section - Scope 1&2(tCO2e/£m)17.9 | Main Section - Scope 3(tCO2e/£m)3.7 | AA Section - Scope 1&2(tCO2e/£m)- | AA Section - Scope 3(tCO2e/£m)- | NWM Section - Scope 1&2(tCO2e/£m)1.0 | NWM Section - Scope 3(tCO2e/£m)12.0 | RBSI Section - Scope 1&2(tCO2e/£m)1.0 | RBSI Section - Scope 3(tCO2e/£m)12.0 |
| Asset ClassHedging assets | Main Section - Scope 1&2(tCO2e/£m)89.1 | Main Section - Scope 3(tCO2e/£m)- | AA Section - Scope 1&2(tCO2e/£m)89.1 | AA Section - Scope 3(tCO2e/£m)- | NWM Section - Scope 1&2(tCO2e/£m)89.1 | NWM Section - Scope 3(tCO2e/£m)- | RBSI Section - Scope 1&2(tCO2e/£m)84.7 | RBSI Section - Scope 3(tCO2e/£m)- |
| Asset ClassCash | Main Section - Scope 1&2(tCO2e/£m)68.9 | Main Section - Scope 3(tCO2e/£m)- | AA Section - Scope 1&2(tCO2e/£m)11.3 | AA Section - Scope 3(tCO2e/£m)- | NWM Section - Scope 1&2(tCO2e/£m)11.5 | NWM Section - Scope 3(tCO2e/£m)- | RBSI Section - Scope 1&2(tCO2e/£m)11.5 | RBSI Section - Scope 3(tCO2e/£m)- |
| Asset ClassCarbon footprint (tCO2e/£m invested) | Main Section - Scope 1&2(tCO2e/£m)74.1 | Main Section - Scope 3(tCO2e/£m)101.4 | AA Section - Scope 1&2(tCO2e/£m)34.4 | AA Section - Scope 3(tCO2e/£m)107.7 | NWM Section - Scope 1&2(tCO2e/£m)56.5 | NWM Section - Scope 3(tCO2e/£m)0.6 | RBSI Section - Scope 1&2(tCO2e/£m)116.6 | RBSI Section - Scope 3(tCO2e/£m)0.4 |
Source: MSCI / Investment managers / Aon.
Note 1: Residual quoted equity portfolio was excluded from the analysis on the basis of materiality.
The year-on-year comments for total carbon emissions highlighted above, are also appropriate when looking at carbon footprint. In addition to this, the Trustee notes that as carbon footprint is a metric that looks at emissions per value unit of investment (i.e., per £1m invested), it is also sensitive to changes in the market value of assets. Given that market values have fallen by around a third over the last 12 months then – all other things being equal – the Trustee would expect the carbon footprint to increase by around 50%.
SBTi alignment
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A Science Based Target (SBT) provides a clearly defined pathway for companies to reduce GHG emissions, helping prevent the worst impacts of climate change and future-proofing business growth. GHG reduction targets are considered “science-based” if they are in line with the latest climate science data necessary to meet the goals of the Paris Agreement – limiting global warming to well-below 2℃ above pre-industrial levels and pursuing efforts to limit warming to 1.5℃.
The long-term nature of SBTs provides a clear direction of travel and can offer insight into important market trends that will be shaped by the low carbon transition. The targets are created by the SBTi and are scientifically confirmed requirements that will set the path for transitioning to a low (preferably zero) carbon economy.
The table below summarises latest available SBTi alignment data for the Fund across the applicable asset classes1.
| 2022 (%) | 2021 (%) | YoY % change | |
|---|---|---|---|
| Quoted equity* | 2022 (%)0% | 2021 (%)21% | YoY % changeNot applicable (all managers divested) |
| Alternative equity* | 2022 (%)0% | 2021 (%)3% | YoY % change-3% |
| Total Credit | 2022 (%)24% | 2021 (%)24% | YoY % change0% |
| Cash | 2022 (%)4% | 2021 (%)- | YoY % change+4% |
Source: Managers, as at 31 December 2022.
1Applicable assets exclude insurance, property, private equity, hedging assets.
*The Trustee divested from its quoted equity holdings over the year. The Trustee also divested from a mandate within the alternative equity portfolio which has SBTi target. As such, the SBTi alignment within these asset classes fell to zero.
Over the year, the Trustee has restated its SBTi alignment metric to better represent assets in scope for the percentage of assets with a net zero target. As represented in the table above, assets in scope are quoted equities, alternative equities, total credit and legacy cash accounts. Assets such as wind farms and forests are naturally aligned with net zero but have not yet developed SBTs.
Quoted and alternative equity SBTi percentage alignment fell due to a divestment from the applicable portfolios over the year. Credit and legacy cash investment managers continue to report on this data. Overall, the Trustee is comfortable with the metrics observed over the year.
Implied temperature rise (ITR)
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ITR is used to show the potential increase in global temperature due to the GHG emissions produced by companies. It is expressed as a range of temperatures, with higher levels of GHG emissions leading to a higher predicted temperature rise.
This year the Trustee has chosen to report on ITR, which provides a more sophisticated measure of the Fund’s impact on climate change and can also be used to better align its investments with reaching its net zero goals.
The table below shows the available ITR data for the Fund across the applicable asset classes1.
| Asset class | ITR (°C) |
|---|---|
| Asset classAlternative equity | ITR (°C)1.50 – 5.25 |
| Asset classTotal Credit | ITR (°C)2.32 – 3.80 |
| Asset classProperty | ITR (°C)0.00 – 3.80 |
| Asset classHedging assets | ITR (°C)1.90 |
| Asset classCash | ITR (°C)2.70 |
Source: Managers, as at 31 December 2022.
1 Applicable assets exclude insurance and private equity.
Quoted equities have been excluded due to materiality. ITR data was not provided by the private equity mangers, this is due to the nature of the asset class, where there is currently not a robust methodology in place to collect this data. Insurance has been excluded due to the nature of the asset class.
Data observations and limitations
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Because not all the Fund’s managers were able to provide all the requested data, the reported emissions metrics do not include all the Fund’s GHG emissions. And so, the metrics show the Fund’s GHG emissions to be lower than they really are.
The Trustee expects that in the future better information will be available from managers and this improvement will be reflected in the coming years’ reporting.
The Trustee’s responsible investment adviser, Aon, requested data from all the Fund’s managers:
- 11 managers provided Scopes 1, 2 and 3 GHG emissions.
- 8 managers provided Scopes 1 and 2 only.
- 7 managers did not provide any information.
The Trustee notes that a number of its managers had made commitments to net zero emissions by 2050, but had not yet begun tracking its portfolio emissions, or alignment with SBTi. For example, none of the private equity managers have been able to provide PAM data, additionally, some of the alternative (Tufton, New Forest), credit (Man, Axa) and property managers (Partners) were also unable to disclose figures for their respective funds, though managers have stated they would be able to demonstrate (timely) carbon metric estimate data moving forward.
Other managers such as Navis, Pathway, Gramercy and Polus have not yet set a top-down target (at assets under management or strategy level) for net zero emissions by 2050 and the Trustee will engage with the manager to better understand their rationale. The Trustee also plans to engage with its managers that were unable to supply emissions data for this analysis.
The Trustee notes that there is not yet an industry-wide standard on calculating some of these metrics and that different managers may use different methods and assumptions when providing data to the Trustee, and this may also impact year-on-year comparison where different methodologies may be used.These issues are common across the industry at the current time and highlight the importance of TCFD-aligned reporting to improve transparency. The Trustee expects that in the future better information will be available from managers as the industry aligns to expectations and best practice standards.
Looking to the future: Our climate-related targets
Climate-related targets help the Trustee track its efforts to manage the Fund’s climate change risk exposure.
The Trustee has decided to not only set the trajectory for the Fund’s assets in line with its net zero commitment, but also measure the proportion of portfolio companies, by allocation weight, that have aligned to SBT using 2021 assessment as a baseline year.
The Trustee’s principal target
Given the current portfolio has 20% of assets aligned with SBT, the Trustee has set a target using a linear scaling up required year on year to reach 100% target by 2050 (as per the SBTi’s guidance for Financial Institutions), on all assets excluding hedging assets, property, insurance, hedging assets and currency hedging assets. This is the Trustee’s principal target.
- By 2030, 57% of Fund’s AUM to be aligned with net zero SBTi targets
- By 2050, 100% of Fund’s AUM to be aligned with net zero SBTi targets
The Trustee believes that in order to achieve the 1.5℃ temperature reduction, which is in line with the Paris Agreement goals, a more rapid reduction in the carbon emission is required in the near-term future.
As of 2022, 20% of the Fund’s AUM is aligned with SBT, which is a 1% decline in comparison to 2021 data. This is primarily due to the divestment from the quoted equities and a mandate from the alternative equity portfolio. The Trustee expects to see improvement in the future as the investment managers are developing their methodologies in collecting SBT data and are working towards reaching their own net zero targets.
The Trustee’s additional target
The Trustee has also chosen to set an additional target, with respect to achieving net zero carbon emissions. The Trustee shares the market view that to achieve net zero by 2050, interim targets for 2030 should be set and they should reflect that the latter emissions reductions will be harder and require more time:
- By 2030, achieve total emission reduction by 57% (using 2021 carbon data as a base year)
- By 2050, achieve a net zero emission target (using 2021 carbon data as a base year)
Despite total emissions being higher this year, the Trustee is comfortable with the progress being made in relation to the carbon reduction target. The inclusion of Scope 3 data signifies a positive development in the effort from the managers in reporting carbon emissions.
The Fund’s performance against the target will be measured and reported on every year. Over time, this will show the Fund’s progress against the target. The Trustee will review the appropriateness of its targets against the upcoming buy-in exercise and other relevant strategic changes where relevant.
What is the Trustee doing to reach the target?
To reach its target, the Trustee plans to engage with the Fund’s managers to improve their SBT and net zero targets. The Trustee anticipates doing this via an annual questionnaire to assess managers’ progress against the implementation of the SBTs, while also utilising its engagement partner to encourage investee companies to adopt SBTs across the Fund’s invested portfolio.
The Trustee acknowledges that if it implements buy-ins then this would involve the Trustee passing the assets over to an insurer. In return the Trustee would receive an insurance policy which would deliver cashflows matching the benefit payments the Fund makes to members. This ultimately means that the Trustee would have substantially fewer assets over which it has direct control.