4 minute read
Guest View: Becky LeAnstey of the Environment Agency Pension Fund
Show us the evidence. That is what our members ask when we tell them that we are investing responsibly. The Environ ment Agency Pension Fund (EAPF) is an open defined benefit scheme, which is part of the Local Govern ment Pension Scheme (LGPS). We have 38,500 members and assets of around £4 billion and are part of the Brunel Pension Partnership. The special thing about our membership is that they all work or have worked to help improve the environment in the public sector, be that directly or indirectly in supporting roles. A spirit of acting in the public good is strong for both our members and our Fund.
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Our mission is to deliver a globally successful and truly sustainable pension fund. We believe we generate stronger financial returns by investing in companies that contribute to the long-term sustainable success of the economy and society as a whole. We also believe that climate and nature are interlinked themes that if not properly managed together have the potential to be a material financial risk to our portfolio. Whilst not forgetting that they also offer new opportunities to generate a good return. Our fiduciary duty to maintain a secure pension for our members is first and foremost, which means we need to properly assess and manage the risks and opportunities that climate and nature both provide.
As a pension fund, we diversify our portfolio to manage risk and return. While we invest significantly in green technologies, we still need to invest across the whole economy. We need all companies to improve their environmental performance, this includes reducing their emissions, adapting to be resilient to the climate change we are locked into and understanding and protecting the natural capital that their businesses are based on.
How do we achieve this? There is no one solution fits all, it is complex, it is location specific, and it is a journey. Every organisation will begin at a different level and should not expect to solve it with one change. It is about continuous improvement and translating the science into the action required. Recognising and openly acknowledging the challenge is the first step.
We have set a target that by 2025, 17% of our investments across the portfolio will directly help tackle climate change.
At EAPF our policy framework has been used to communicate our beliefs on climate and nature, setting out responsible investment aims and creating timebound targets to help achieve those aims. These consist of both portfolio level and topic specific targets including engagement, that we monitor annually to make sure they remain stretching.
Based on risk to the Fund, and our Fund’s focus on environmental issues, we agreed the following priority areas for engagement: climate change, using resources sustainably and water. We recognise that we cannot solve these problems alone and have joined partnerships such as the Ceres Valuing Water Financial Initiative, IIGCC’s adaptation working group and Global Canopy’s deforestation-free pensions guidance to leverage the groups combined knowledge and achieve more together.
In 2014 we started to develop our Targeted Opportunities Portfolio (TOP) to increase our allocation to sustainable private markets. TOP enables the fund to invest directly in a few outstanding opportunities, which have strong financial and sustainability credentials. Today the strategic asset allocation to this portfolio is 4%. It offers us a broader scope than traditional private equity.
We don’t have all the answers and there will always be gaps in our knowledge as the data we need to make evidence-based decisions improves, so our plans to address the risks and opportunities of climate change and nature will remain a work in progress.
However, we know the direction of travel needed to create a sustainable economy and will set ourselves targets to help us achieve the actions needed to get there, so that we can achieve stable long term financial returns for our members.
The more engaged pension members are, the more likely they are to make good decisions around their pension – how much they’re contributing and where they are invested. After all, it’s the contribution amounts that, over time, make the biggest difference.
