Nest plans to invest £5.5bn into environmentally friendly strategies in a drive by the UK government-backed workplace pension scheme to decarbonise its £12bn investment portfolio and tackle global warming.
Many large institutional investors and big asset managers, such as BlackRock, now view the need to slow global warming as an urgent priority if catastrophic damage to the natural environment is to be avoided.
Nest intends to cut damaging pollution emissions across its investments in half by 2030, with a goal of achieving a net-zero carbon position by 2050 or earlier. It will shift £5.5bn of shares into climate aware strategies, representing 45 per cent of its entire portfolio.
“This will immediately reduce Nest’s carbon footprint by the equivalent of taking 200,000 cars off the road. No one wants to save throughout their life to retire into a world devastated by climate change,” said Mark Fawcett, chief investment officer of the pension scheme which looks after the retirement savings of 9m UK workers.
Nest has already invested £100m in renewable energy projects across Europe. Mr Fawcett said an unspecified “greater proportion” of Nest’s funds, which are projected to rise to about £100bn by 2039, would be directed into green infrastructure.
It will also begin to divest from equities and bonds issued by companies involved in thermal coal, oil sands and Arctic drilling. It intends to have exited completely from these companies by 2025 at the latest unless they have a clear plan to phase out all related activity by 2030. Nest declined to name the targeted companies but Mr Fawcett said they accounted for “comfortably less” than 1 per cent of its portfolio.
Lauren Peacock, campaign manager at ShareAction, the UK-based responsible investment charity, urged other pension funds to adopt similar policies.
“Nest is setting clear expectations for those most responsible for the climate emergency and demonstrating the power of pensions to move those [companies] most responsible for the climate emergency along a more sustainable path,” said Ms Peacock.
Nest also intends to make climate change a key focus of its stewardship work as a responsible investor. It will vote against management resolutions if companies fail to make appropriate links between executive pay awards and climate change-related key performance indicators.
“We will consider divesting if we judge a company to be progressing insufficiently,” warned Mr Fawcett.
Ms Peacock said: “It is vital that engagement [by institutional investors] leads to meaningful change by companies if we are to curtail the climate crisis.”
New investment mandates granted to external managers by Nest will be expected to be consistent with limiting the rise in global temperatures to 1.5C, the goal agreed at the 2015 Paris climate change conference. Managers that are already employed by Nest will have three years to adapt to the same standard. All managers that run portfolios for Nest will be expected to demonstrate how emissions for these strategies can he halved by 2030.
“We will hold our fund managers to account for their own climate change policies and assess their progress annually towards the objectives we set for Nest’s portfolios,” said Mr Fawcett.