The local government scheme of Northern Ireland has moved its £2.8bn passive core equity assets to a low carbon transition fund run by Legal & General Investment Management, which it says has 70% lower carbon emissions than the standard global equity index. The pension fund is currently working on an action plan towards net zero before making a public commitment. 

 

The Northern Ireland Local Government Officers’ Superannuation Committee, which provides pensions on behalf of 171 employers and has more than 145,000 members, has moved a sizeable chunk of its £10bn assets to a low carbon transition fund with LGIM. 

 

The low carbon transition fund tracks the ‘Solactive L&G Low Carbon Transition Developed Market’ index, which aims to self-decarbonise by reducing exposure to carbon emissions over time. Its goal is to reduce carbon intensity by 70% relative to the starting universe at the outset, and to achieve net zero carbon emissions by 2050, along a decarbonisation pathway of 50% at the outset and a further 7% each subsequent year.   

 

The index covers all developed markets but excludes companies that derive 20% or more of their revenue from thermal coal mining and power generation, companies in perennial breach of the UN Global Compact and manufacturers of controversial weapons. Holdings in the remaining universe are given a climate score based on emissions intensity, reserves intensity and green revenues, which then informs the tilt within the index. 

 

The pension fund’s chief executive David Murphy said: “NILGOSC has not made a public commitment to net zero at this time because it wants to have a robust action plan in place before doing so. We are a supporter of the Paris Agreement so our direction of travel is clear.” 

 

The UN’s Paris Agreement on Climate Change from 2015 aims to limit global warming to 1.5°C compared to pre-industrial levels.  

 

Murphy said NILGOSC did not plan to make a net zero commitment until "clear and achievable milestones” were determined but added that work on this is progressing. 

 

The fund’s recent move of its core £2.8bn passive equity investments to a Low Carbon Transition Fund “will be a key building block of a net zero strategy,” he said.  

 

NILGOSC is also continuing to increase its holdings in low-carbon assets such as wind energy, solar, energy from waste, hydro, public transport, district heating and manufacturers for the renewable energy industry, as well as engaging with issuers in its mainstream holdings. More than half of the fund’s assets are actively managed. 

 

This year, the fund published its first report in line with the recommendations of the Taskforce on Climate-related Financial Disclosures. Local government schemes are not yet required to do so, but it is planned that similar legislation will be introduced about TCFD reporting for LGPS schemes as it already applies to large private sector schemes. 

 

Murphy said NILGOSC was now awaiting the terms of the legislation that will set out what carbon metrics are to be measured and what targets are to be set. “This will form an important plank of our net zero plan, especially the setting of the pre-2050 milestones,” he said. The legislation is currently expected to be operational in 2023. 

   

The fund is a signatory to the United Nations Principles of Responsible Investment and a member of the Institutional Investor Group on Climate Change, which have called on the G20 and G7 governments to take further action to meet their Paris commitments. NILGOSC was also among the UK asset owners that wrote to the prime inister in January 2021 demanding more action to meet the country's 2050 net zero target and is a member of investor initiative Climate Action 100+. 

 

 

The NI government recently sought views on the Northern Ireland climate bill, which aims to establish a legally binding net zero carbon target for Northern Ireland, and to set up a Northern Ireland Climate Commissioner and Northern Ireland Climate Office among others. The fund responded to the consultation, said Murphy, adding that “this type of engagement activity is regular and ongoing”. 

 

The scheme aims to have 34% of its assets in equities, having almost halved its allocation in 2019. It considers that this shift, which came with an increase in fixed income and infrastructure assets, its exposure to any negative effects of temperature rises. Over the coming months, it plans to appoint an additional global equity manager, a global property manager and increase its commitments to infrastructure and private residential property funds. 

 

NILGOSC’s overall investment target changed on 1 January 2022; since then, it needs to exceed CPI by 3% a year, measured over three and five-year periods, down from CPI plus 3.5%. Over three and five years to the end of 2021, the fund outperformed its target. 

 

How are local government schemes changing investments in view of climate risk?