Local Pensions Partnership Investments
LPPI manages assets on behalf of pension fund clients. LPPI joined the Net Zero Asset Managers Initiative in November 2021 and made its Initial Target Disclosure in November 2022.
Percentage of assets covered by the Net Zero Asset Managers Commitment Statement
50% of total AUM (USD $14.7 billion)
Information on interim target(s) covering the proportion of assets to be managed in line with net zero
Baseline(s):
Portfolio coverage baseline
Listed Equity: 14% of AUM in material sectors is considered net zero, aligned, or aligning. (net zero: 0%, aligned: 0%, aligning: 14%).
Portfolio coverage baseline
Fixed Income (Corporates): 45.7% of AUM in material sectors is considered net zero, aligned, or aligning. (net zero: 0%, aligned: 2.4%, aligning: 43.3%).
Real Estate (Directs): 96% of AUM in material sectors is considered net zero, aligned, or aligning. (net zero: 0%, aligned: 52.8%, aligning: 43.2%).
Portfolio decarbonisation reference baseline
Portfolio emissions in absolute terms
Listed Equity: 393,959 tCO2e
Fixed Income (Corporates): 17,255 tCO2e
Portfolio emissions in intensity terms
Listed Equity: 107.9 tCO2e/$mn sales
Fixed Income (Corporates): 77.9 tCO2e/$mn sales
Portfolio decarbonisation reference baseline
Portfolio emissions in absolute terms
Real Estate (Directs): 9,030 tCO2e/yr
Portfolio emissions in intensity terms
Real Estate (Directs): 20.7 kgCO2e/m²/yr
Engagement threshold baseline
Financed emissions net zero or aligned
Listed Equity: NA/0% of financed emissions in material sectors are net zero or aligned. The gaps in reported company data on decarbonisation strategies and net zero aligned capital allocation prevents a full assessment of which in our portfolio can be classified as ‘net zero’ or ‘aligned’ at this stage. Finding we cannot accurately label a company as ‘net zero’ or ‘aligned’ led to our attribution of NA/0% here. We anticipate this figure improving as data quality improves.
Financed emissions under engagement
Listed Equity: 42% of financed emissions in material sectors are subject to direct or collective engagement and stewardship actions.
Engagement threshold baseline
Financed emissions net zero or aligned
Fixed Income (Corporates): 0 % of financed emissions in material sectors are net zero or aligned.; Real Estate (Directs): 30.5 % of financed emissions in material sectors are net zero or aligned.
Financed emissions under engagement
Fixed Income (Corporates): 43% of financed emissions in material sectors are subject to direct or collective engagement and stewardship actions.; Real Estate (Directs): 69.2% of financed emissions in material sectors are subject to direct or collective engagement and stewardship actions.
Target(s):
Portfolio coverage target
Listed Equity: 32% of AUM in material sectors will be considered net zero, aligned or aligning by 2025.
Fixed Income (Corporates): Increase the % AUM in companies within material sectors which are net zero, aligned or aligning by 2025.
Real Estate (Directs): At least 90% of the direct portfolio will be assessed as net zero, aligned or aligning with a net zero pathway by 2025.
Portfolio coverage target
Listed Equity: 55% of AUM in material sectors will be considered net zero, aligned or aligning by 2030.
Portfolio coverage target
Listed Equity: 100% of AUM in material sectors will be considered net zero or aligned to net zero by 2040.
Real Estate (Directs): Overall ambition for 100% of assets to be assessed as net zero or aligned by 2040.
Portfolio decarbonisation reference target
Portfolio emissions in absolute terms
We are not reporting our target in absolute emissions terms at this stage.
Portfolio emissions in intensity terms
Listed Equity: 53.1 tCO2e/$m sales. This equates to a 51% reduction in the emissions intensity of the Global Equities Fund by 2030 compared to 2019.
Fixed Income (Corporates): 120.9 tCO2e /$m sales or below by 2030 we are using a benchmark relative approach so our target is to remain below the benchmark pathway, which equates to 120.9 tCO2e /$m sales or below by 2030.
Real Estate (Directs): 10.4 kgCO2e/m²/yr, 50% This equates to a 50% reduction in the emissions intensity of the Real Estate Fund by 2030 compared to 2022.
Engagement threshold target
We are not separating our target between the share we intend to have under engagement vs the share considered net zero or aligned.
Listed Equity: 70% of financed emissions in material sectors will either be assessed as already net zero, aligned with a net zero pathway, or subject to direct or collective engagement and stewardship actions by 2022.
Fixed Income (Corporates): 70% of financed emissions in material sectors will either be assessed as already net zero, aligned with a net zero pathway, or subject to direct or collective engagement and stewardship actions by 2025.
Real Estate (Directs): 90% of the direct portfolio will be assessed as net zero, aligned with a net zero pathway or the subject of direct or collective engagement and stewardship actions by 2024.
Credit: We expect external managers with >75% of their portfolios in corporate fixed income (or otherwise determined to be in scope) to engage with the highest emitters in their portfolios and provide reporting on this to us. Over time this is expected to mean engagement with the top 10 emitters and/or contributors in the portfolio based on contribution to financed emissions, but requirements will be determined according to context.
Engagement threshold target
We are not separating our target between the share we intend to have under engagement vs the share considered net zero or
aligned.
Listed Equity: 90% of financed emissions in material sectors will either be assessed as already net zero, aligned with a net zero pathway, or subject to direct or collective engagement and stewardship actions by 2030.
Fixed Income (Corporates): 90% of financed emissions in material sectors will either be assessed as already net zero, aligned with a net zero pathway, or subject to direct or collective engagement and stewardship actions by 2030.
GHG scopes included:
Listed Equities and Fixed Income (corporates): Our portfolio decarbonisation baseline and target only include Scope 1 and 2 emissions. We will review data quality over time
and phase in scope 3 subject to the availability of sufficiently robust information.
Our company-level assessments as part of our asset level targets include consideration of Scope 3 emissions disclosures and their inclusion within company targets as part of the alignment criteria.
Real Estate: Landlord and Tenant scope 1 and 2 are included, and tenant scope 3 emissions are included. Some scope 3 activities emissions will be measured in 2023 and included in emissions data from 2024 e.g. retrofit, refrigerants, emissions from waste generated.
Methodology:
Net Zero Investment Framework
Scenario(s):
Listed Equities: NGFS, Net Zero by 2050 scenario, adapted by MSCI for use in their updated ITR model. Determines the position of individual
companies in the portfolio against a tailored 1.5°C-aligned carbon budget which is then aggregated up to a portfolio level.
Fixed Income (Corporates): A benchmark-relative approach to create a 1.5C aligned pathway (‘guardrail’) by applying a 50% reduction between 2019 and 2030. The pathway is derived from the P2 scenario in the IPCC special report on global warming of 1.5°C, which finds that a 50% reduction in 2019 emissions levels is needed globally by 2030.
Real Estate (Directs): CRREM’s Risk Assessment tool determines the position of individual assets in the portfolio against a tailored 1.5°C-aligned carbon budget which is then aggregated up to a portfolio level. The model suggests a fair share emission reduction of 48% to 2030, but we have chosen to increase our ambition to 50%.
Additional information
Proportion of AUM committed:
We have set targets for listed equities, fixed income (corporates) and real estate (direct) asset classes for which we currently have sufficiently robust data and analytical capability to carry out net zero alignment, measurement, and monitoring. We have also set out an engagement strategy for our credit (corporates) asset class. Data availability and resourcing constraints are still a significant barrier, so we continue to opt for a phased approach to our target coverage. We await the development of a market consensus on sovereign bonds methodology and continue to follow this development closely. Infrastructure and our externally managed real estate will be phased in from 2024 and we will establish a plan for bringing private equity into scope thereafter.
Policy on coal and other fossil fuel investments:
The coal exclusion applies to our whole portfolio, which was £24.2bn ($29.5) in September 2023.
The extractive fossil fuel exclusion applies to our Global Equities Fund, which was £10.5bn ($12.7bn) in September 2023.
The policy can be found within our Responsible Investment Policy – Annex on Climate Change found here:
https://www.localpensionspartnership.org.uk/Investment-management/Responsible-investment/Responsible-Investment-reportsand-
policies
Percentage of assets covered by the Net Zero Asset Managers Commitment Statement
42% of total AUM (USD $12.4 billion)
Information on interim target(s) covering the proportion of assets to be managed in line with net zero
Baseline(s):
Portfolio coverage baseline
14% of AUM in material sectors is considered net zero, aligned, or aligning.
Portfolio decarbonisation reference baseline
393,959 tCO2e
107.9 tCO2e/ $m sales
Engagement threshold baseline
0% of financed emissions in material sectors are net zero or aligned. The gaps in reported company data on decarbonisation strategies and net zero aligned capital allocation prevents a full assessment of whether those in our portfolio can be classified as ‘net zero’ or ‘aligned’ at this stage. We therefore feel that we cannot accurately label a company as ‘net zero’ or ‘aligned’ hence our attribution of 0% here. We anticipate this figure improving as data quality improves. 42% of financed emissions in material sectors are subject to direct or collective engagement and stewardship actions.
Target(s):
Portfolio coverage target
32% of AUM in material sectors will be considered net zero, aligned or aligning by 2025; 55% of AUM in material sectors will be considered net zero, aligned or aligning by 2030; 100% of AUM in material sectors will be considered net zero or aligned to net zero by 2040.
Portfolio decarbonisation reference target
91tCO2e/$m sales
Engagement threshold target
Our full target is as follows: 70% of financed emissions in material sectors will either be assessed as already net zero, aligned with a net zero pathway, or subject to direct or collective engagement and stewardship actions by 2022; 90% by 2030. We are not separating our target between the share we intend to have under engagement vs the share considered net zero or aligned.
GHG scopes included:
Our portfolio decarbonisation baseline and target only include Scope 1 and 2 emissions. Scope 3 emissions are not yet widely reported by portfolio companies and when reported, do not cover all relevant categories of emissions, producing a biased picture of a company’s true emissions profile. Given the current issues surrounding the data coverage of Scope 3 emissions, we will progressively integrate portfolio Scope 3 emissions from 2023 in line with the IIGCC framework. This will be subject to the availability of sufficiently robust information. Our company-level assessments as part of our asset level targets include consideration of Scope 3 emissions disclosures and their inclusion within company targets as part of the alignment criteria.
Methodology:
Net Zero Investment Framework
Scenario(s):
We have adopted a benchmark-relative approach using the Global Equities Fund’s own comparator benchmark, MSCI ACWI, to create a 1.5C aligned pathway or ‘guardrail’ by applying a 50% reduction requirement by 2030 to its baseline position in 2019. The pathway is derived from the P2 scenario in the IPCC special report on global warming of 1.5C and updated based on subsequent emissions growth which finds that a 50% reduction in 2019 emissions levels is needed globally by 2030.
Our data provider, MSCI, has yet to develop a 1.5C aligned pathway using a carbon budget approach. We plan to supplement our initial benchmark-reference approach with a portfolio self-decarbonisation target in due course to reflect the composition of the Global Equities Fund more precisely, and the position of individual companies against a tailored 1.5°C-aligned carbon budget. We will review our current trajectory and update our target to reflect the new bottom-up approach when this becomes available.
Additional information
Proportion of AUM committed:
We have set targets for listed equities, the asset class for which we currently have sufficiently robust data and analytical capability to carry out net zero alignment, measurement, and monitoring. Data availability and resourcing constraints are a significant barrier, so we have opted for a phased approach to our target coverage. Real estate and corporate fixed income will be phased in from 2023. We will await the development of a market consensus on a sovereign bonds methodology before we include them and will follow this development closely over the next 12 months. We will also review the IIGCC’s recommendations for infrastructure and private equity once complete and establish a plan for bringing them into scope of our targets thereafter.
Policy on coal and other fossil fuel investments:
Yes. The policy can be found within our Responsible Investment Policy – Annex on Climate Change found here. A coal exclusion applies to our whole portfolio, which was £24.2bn ($29.4) in July 2022.
An extractive fossil fuel exclusion applies to our Global Equities Fund, which was £10.2bn ($12.4bn) in July 2022.
Further information:
A document detailing our net zero approach and methodology is due to be made available from our website. Our most recent TCFD report provides further detail on our approach to managing climate change and further insight into our real estate portfolio. It can be found at the end of our Responsible Investment and Stewardship Annual Report 2020/21 here Details of our climate change stewardship approach, including net zero, can be found in our Shareholder Voting Guidelines here.