Stockholm (NordSIP) – The Church of England Pension Board announced a £600 million investment in the recently launched FTSE TPI Climate Transition Index. It is the first global index that enables passive funds to capture companies alignment with the Paris Climate Agreement.
The index has been in development by FTSE Russell in collaboration with the Church of England Pensions Board, and the Transition Pathway Initiative (TPI) for the past 18 months. It is being launched in response to recent calls by Mark Carney, the Governor of the Bank of England, challenging pension funds to address the financial risk of climate change. The new index uses forward-looking data from the TPI tracking whether companies align with the 2°C target.
The Transition Pathway Initiative (TPI) is a global initiative led by asset owners and supported by asset managers. Aimed at investors and free to use, the TPI assesses how individual companies are positioning themselves for the transition to a low-carbon economy through a public, transparent online tool. The TPI is backed by 62 funds with over US$18 trillion of combined assets under management or assets under advice. TPI is co-chaired by the Church of England Pensions Board and the Environment Agency Pension Fund in partnership with the Grantham Research Institute at the London School of Economics.
“Last month Governor Mark Carney challenged people to ask what their pension funds are doing to address the financial risks of climate change,” Adam Matthews, Director of Ethics and Engagement for the Church of England Pensions Board & Co-Chair of the Transition Pathway Initiative (TPI) added. “Working over the past 18 months, we have developed an answer that enables passive investors to play their part in supporting the goals of the Paris Climate Agreement. The message is clear to all publicly listed companies: put in place targets and strategies aligned to Paris and be rewarded with inclusion in the Index, or work against the long term interests of beneficiaries and wider society, and be excluded. The Church of England Pensions Board will no longer be invested in several household names in the oil industry. The Index leaves open a path for anyone of these excluded companies to transition in line with the Paris Agreement and claim their place in the index at a later date.”
The Index results in changes to some key holdings across a range of high impact emissions sectors. Shell and Repsol are included in the index while ExxonMobil, Chevron and BP are not. If the latter three companies set emissions targets covering all their emissions that align to the Paris Agreement, then the Index rules would allow inclusion.
As a result, the index will allow the carbon intensity of the Church of England Pensions Board’s portfolio to be 49.1% lower than its current passive allocation. Exposure to green revenues increases by 35%, while exposure to fossil fuel reserves falls by 69%. Exposure to operational CO2 emissions is reduced by 36%
“This is an industry-leading undertaking on behalf of our beneficiaries to address the financial risks within our passive investments posed by companies that are not addressing climate change,” said Clive Mather, Chair of the Church of England Pensions Board said. “It will allow the Pensions Board, to deliver on a large part of our 2023 commitment to the General Synod of the Church of England to have disinvested from those companies, assessed by TPI, that have not set themselves on a path to alignment with the goals of the Paris Climate Agreement. The Index also meets a key part of our commitment to be a net-zero Pension Fund. We invite all other pension funds that are passively invested to join us in developing such an approach, and not to simply disinvest but incentivise companies to transition whilst having real-world consequences for those that do not do so and put at risk achieving a net-zero world.”