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Climate Change

What is the Fund's stance on climate change?

The Fund recognises the impact that climate change is likely to have on the global economy and society as a whole and has incorporated that message into its pdf icon Responsible Investment Framework 2019 [1Mb]. It is the Fund's view that the scale of these impacts is such that a proactive and precautionary approach is needed in order to address them.  As long term investors, the Fund is aware that climate change brings with it  risks and opportunities and at all times we need to balance that with having a clear focus on the financial performance of our portfolio.

What is the Fund's stance on the issue of divestment from carbon-intensive stocks and fossil fuel companies?

At the present time, the Fund does not believe that divesting its investments from carbon-intensive stocks would be in the best interests of our members. This is a position that the Fund continues to re-evaluate as the market dynamic changes.   The Fund believes that there is a chance of re-pricing of fossil fuels assets but remain unsure as to the exact timing and quantum.  In the short to medium term, the Fund favours intensive and robust engagement, where we believe there is opportunity to add value to the portfolio over the short to medium term by working with the companies (and indirectly through our fund managers) to help them reshape their business models.

How does the Fund address climate change risks and opportunities in its portfolio?

There are three key pillars to the Fund's approach to climate change.  

Fund manager monitoring program 

In light of the December 2015 Paris Agreement, the Fund has begun a more targeted engagement program on climate change impacts with its external fund managers.  Key expectations include:

  • Assessing climate change impacts and opportunities through the use of quantitative carbon risk indicators such as portfolio stress testing/scenario planning or carbon footprinting. 
  • Evidence of a robust active ownership program to mitigate climate change impacts (see next pillar for further detail)
  • How the findings of their analysis and active ownership approach impact upon investment decisions.

The Fund recognises this is a long term project but remains committed to ensuring that external managers that invest on our behalf demonstrate a willingness to evolve in their approach and ultimately improve their disclosure of portfolio specific climate change risks and opportunities over a reasonable timeframe.

Active ownership program

The Fund has a significant allocation to passive listed equities which are managed internally. The Fund is working with other like-minded investors such as the Aiming for A initiative, to develop a robust engagement program with companies. This seeks assurance that they have the systems, capacities and knowledge to respond effectively to the pressures they will face to further decarbonise their businesses and play their role in the transition to a low carbon economy.  Greater transparency and accountability on the progress that is being made together with expectations of engagement become even more important, especially in the context of increasing stakeholder pressure in this space.

The Fund co-filed shareholder resolutions for BP and Shell in 2015 on carbon management which received unprecedented levels of investor support. In 2016, we have also co-filed shareholder resolutions at three mining companies (Anglo American, Rio Tinto and Glencore). The Fund has also introduced more climate change related policy elements to its UK voting guidelines for the upcoming proxy season.

The Fund is also a member of the Institutional Investors Group on Climate Change, which conducts climate policy engagement on behalf of its members. In light of the Paris Agreement, continued investor pressure in this space to ensure global commitments are honoured is crucial.

Climate change opportunities

In alignment with our responsible investment beliefs, the Fund believes there are some investment opportunities stemming from the environmental and social challenges arising from climate change which can be captured where they are aligned with the Fund's investment objectives and strategy.  The Fund currently has exposure to several investments in clean technologies in its infrastructure and private equity portfolios.   The impact of COP 21 on this space will encourage a greater supply of opportunities and we are open to consider such opportunities where they meet our specific investment criteria and fit within our overall investment strategy.

The West Midlands Pension Fund ("the Fund") has developed an investment strategy underpinned by the belief that effective management of financially material environmental, social and governance risks protect returns over the long term. Climate change is one of the Fund's engagement themes for the 2019/20 Financial year along with single use plastics, technologies and disruptive industries risk and tax transparency and fair tax payment. The Fund recognises that the scale of the potential impact of these risks is such that a proactive and precautionary approach is required.

To support the Fund's work on engaging on Climate change, a five-year Climate Change Framework and Strategy 2019-2023 has been developed.

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