Case study: National Pension Trust adopts climate aware solution
National Pension Trust (NTP), XPS’s DC master trust, undertook a strategy review for its default plan. NPT wished to explore the use of sustainable passive equity having undertaken training on ESG and established strong beliefs around the financial materiality of ESG and climate change in its strategy.
The Investment Team presented a range of investment manager ideas from our green-rated sustainable passive equity funds. This list includes funds which either focus on tilting towards climate risk-aligned companies, or tilt towards companies which score highly in terms of broader ESG risks.
The client expressed a preference for climate risk alignment and therefore selected a fund constructed using the Transition Pathway Initiative (TPI) methodology for company assessment – this favours companies best placed for the transition to a low-carbon economy, over and above companies which simply have lower current emissions. The fund also applies appropriate exclusions to the worst offending companies but prefers to remain invested with certain companies to improve their practices. Once agreed we were able to transition the scheme’s passive equity allocation into the climate-aware fund quickly and at minimum cost with the support of our specialist Transitions Team.
The overall portfolio has significantly reduced risk exposure to climate change in the long term, as well as materially reducing its overall current carbon footprint and aligning with a 2oC investment policy.
Climate change poses a real risk to our future. We want to make the way we invest assets more sustainable – while protecting our members’ long-term financial interests by continuing to deliver great returns. That’s why we have selected the TPI – it achieves our initial goals for reduced carbon exposure today, but also incentivises a transition to future lower carbon intensity for businesses around the world by allocating capital to those firms that do it best.
Paul Armitage, Head of the National Pension Trust