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 2022, 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:
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.