Nest looking to bolster its climate change strategy

• UK’s largest auto enrolment scheme, representing one in four of UK workforce (8.5m), is testing ways to support 1.5C climate goal
• Diandra Soobiah, Nest’s Head of Responsible Investment: “We want to help ensure the world our members retire in is a world they want to live in”
• Nest members have already reduced carbon emissions of their investments equivalent to powering more than 10,000 homes

Nest has launched its latest Responsible Investment report with news it’s boosting efforts to tackle the risks posed by climate change.

The scheme’s Climate Aware Fund (CAF) – a key tool which helps give the 99 per cent of members invested in Nest’s default funds exposure to global stocks and shares – increases investment into companies which are seeking to adhere with the UN’s Paris Accord agreement to limit global warming to 2C. However, Nest wants to go further and is currently testing a more ambitious target of 1.5C.

Last month the UN said the outlook was “bleak” with countries needing to cut carbon emissions five-fold if the world is to avoid warming by more than 1.5C.

Diandra Soobiah, Nest’s Head of Responsible Investment, says the pension scheme places members’ interests at the heart of the organisation:

“Factoring environmental policies into our investment strategy is not only absolutely key to driving better long-term investment results for members but also contributes to global efforts to tackle climate change.

“The climate change risk to both our members and their investments is stark and, frankly, concerning. In good conscience we cannot stand by and do nothing – we want to help ensure the world our members retire in is a world they want to live in. 

“The Climate Aware Fund is one of our key tools to help drive investment into green technology while simultaneously removing investment from the biggest carbon emitters. It’s been successful but we have to go further, reflecting the quickly evolving nature of climate change risk.

“The least ambitious end of the Paris Agreement was set at 2C - this will still significantly worsen the risk of drought, floods, extreme heat and poverty for hundreds of millions of people. Setting a 1.5C target is a stronger goal which we will push hard to support.

“One of the key benefits of the Climate Aware Fund is that we retain the ability to put pressure on the worst offending companies - the 50 worst carbon emitters in the fund are responsible for 27% of global CO2 emissions. We believe they can do better and will continue to pressure them to improve.”

Nest is also considering ways to evolve the CAF to reward companies involved in the supply chain for providing renewable energy equipment, machinery or technology to renewable energy generation companies. These companies can be good investment opportunities for investors and are crucial in finding solutions to reducing carbon emissions.

The RI report confirms Nest members have already invested more than £1 billion through the CAF, of which more than £200 million (22.4 per cent) has been reallocated into companies positioned to benefit from a low carbon economy. This includes renewable energy companies like Meridian Energy, EDP renewables and SSE.

At the same time more than £200 million has been withdrawn from companies that need to change but are making little progress on adapting for a low carbon future. This includes utility company KEPCO and oil and gas companies Chevron and Exxon Mobil.

The £200 million figure will only increase in the coming years as Nest moves from being a scheme looking after £8.5 billion to one responsible for £20 billion by 2022.

The CAF has achieved the following since its launch in 2017:

• A 2.4 per cent average annual reduction of carbon dioxide emissions. 
• In comparison, the FTSE Developed Index (a list of some of the largest public companies from around the world) has increased its average annual CO2 emissions during the same period by 1.6 per cent. 
• Increased investment in companies responsible for renewable power generation so that it has 40 per cent more exposure to them than the FTSE Developed benchmark. 

Nest can also announce it is the latest signatory to Climate Action 100+, adding to the 370 investors already signed up representing more than $35 trillion in assets under management. The initiative puts pressure on the world’s largest corporate greenhouse gas emitters to take necessary action on climate change. Every investor who signs the pledge agrees with the following commitment: 

We believe that engaging and working with the companies in which we invest – to communicate the need for greater disclosure around climate change risk and company strategies aligned with the Paris Agreement – is consistent with our fiduciary duty and will contribute to achieving the goals of the Paris Agreement.