Climate Change

At Lothian Pension Fund, we recognise climate change as a critical factor affecting future investment returns. It is an existential threat, requiring cooperation and significant actions to reduce greenhouse gas emissions around the globe. Consequently, it is driving government policies, corporate actions, and investor behaviour. 

In December, we updated our Statement of Responsible Investment Principles, which not only lays out our approach to climate-related change, but also our approach to all aspects of responsible investment and our plans for ongoing disclosure. 

LPF understands that climate change and policy responses following the Paris Agreement are creating change that represents both significant risks to - and opportunities for - the Fund. As such we’ve made the following commitments to climate monitoring and action:

• • To support the goal of transitioning the real economy to net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5 degrees Celsius by 2100
  • To continue to measure and report annually on the carbon-equivalent emissions intensity of our equity and corporate bond portfolios, and to extend this to additional asset classes as more data becomes available (supported by external managers and using estimates if necessary)
    • • We’re working with our managers, industry standard setters, and other asset owner networks to improve the quality of available data
  • To continue our work with Climate Action 100+ and collaborative partners on engagement with companies to encourage improved disclosure and adoption of business models and strategies that are in line with the aims of the Paris Agreement
    • • Investment alignment: our ambition is that by 2025 all of our holdings that are covered by the Transition Pathway Initiative will have achieved a level 4 assessment and have a business plan whose carbon performance is in-line with the Paris Agreement
  • To continue to research and support the deployment of new capital into climate solutions and assets set to benefit from the transition to a low carbon economy
  • To assess, and monitor our external managers’ assessment of, companies being provided primary capital
    • • Our ambition is to avoid subscribing to new equity and fixed income issuance from companies whose business plans are not aligned with the aims of the Paris Agreement

The UK Government is leading the world with its announcement in 2021 that emissions reporting (under the Taskforce for Climate-related Financial Disclosures (TCFD) framework) would be mandatory by 2025. We believe that all roads lead to ‘net zero’. We are undertaking significant work on our own and with other asset owners, external groups, academics, NGOs and investment managers, which reflects the fact that this is an extremely high priority.

We focus on real world impacts, and are, therefore, unwilling to provide any new financing to companies which aren’t aligned with the goals of the Paris agreement. Furthermore, we use voting and engagement to influence companies, where we have partial ownership, to commit to Paris alignment. We do this on our own, but often more effectively with other asset owners.  

In practice, we largely ‘Engage our Equity and Deny our Debt”.  This is because buying or selling listed equities (shares) doesn’t affect the capital position of a company (it receives no cash), whereas subscribing to new bond or equity issuance does – it usually receives cash to invest. We expect our approach to be a more effective means of achieving necessary change - a real reduction in greenhouse gas emissions - than divestment. 

We’re grateful for your interest in our responsible investment work. You can learn more in our other publications, including ENGAGE, our Stewardship Report and our Annual Report.