Climate change

The Devon Pension Fund believes climate change poses significant risks to global financial stability and could thereby create climate-related financial risks to the Fund’s investments, unless action is taken to mitigate these risks. We are committed to working with the Brunel Pension Partnership to decarbonise our investments in listed portfolios.

Net Zero Commitment

The Devon Fund is a member of the Institutional Investors Group on Climate Change (IIGCC). The IIGCC enjoys a strong international reputation for providing robust, insightful thought leadership across the climate agenda informed by leading members of the investment community committed to action on climate change.

The Devon Fund is a signatory to the IIGCC’s Commitment to achieve net zero portfolio greenhouse gas emissions by 2050 or sooner. The full commitment statement, launched in March 2021 can be found here.

In order to achieve this goal, the Fund has set a target of a minimum 7% per annum reduction in the Weighted Average Carbon Intensity (WACI) of the Fund’s investments, based on the March 2019 calculation of the WACI. This recognises the need for significant progress in the earlier part of the period to 2050, with the intention of achieving a 50-75% reduction by 2030. These targets will also be applied to the Fund’s exposure to fossil fuel reserves as a proxy for downstream scope 3 emissions which are not captured within the WACI calculation.

Carbon Footprint

A key part of the approach is to regularly measure the carbon footprint of the Fund’s equity investments. Calculating the impact of a company’s emissions involves looking not only at the operations of the company itself, but also looking at the impact of the products that it sells and the impact of its supply chain. These are illustrated in the following diagram:

Emissions scopes chart

The WACI for each portfolio and for the Fund’s total equity holdings as at 31 December 2022 is shown in the graph below.

Graph showing weighted average carbon intensity (tonnes of CO2 per million pounds invested) UK Passive 250 v benchmark of 306 World Developed Passive 286 v benchmark of 286 World Paris Aligned Passive 179 v benchmark of 286 Global High Alpha 180 v benchmark of 285 Smaller Companies 209 v benchmark of 323 Emerging Markets 315 v benchmark of 567 Sustainable Equities 264 v benchmark of 317 Sterling Corporate Bonds 152 v benchmark of 168 Total Fund 232 v benchmark of 305

This is the fifth annual assessment of the Fund’s carbon footprint. Progress since March 2019 is shown in the following chart, with the proportionate contribution from each equity portfolio also highlighted.

Graph showing reduction in WACI since March 2019. March 2019 = 423, December 2019 = 332, December 2020 = 264, December 2021 = 237, December 2022 = 232

The chart shows an overall reduction of 45% in the Fund’s WACI since March 2019, which is good progress towards the target of a 50-75% reduction by 2030, and well ahead of the 7% per year target.

Reserves Exposure

One of the issues with the WACI measurement is that it does not capture the downstream tier 3 emissions. Downstream Scope 3 emissions based on product in use (or disposal) are not widely calculated by companies or reported. However, downstream Scope 3 are critical when looking at the impact / investment risk of car manufacturers and fossil fuel companies. This is linked with the risk involved in stranded assets, where companies may have large reserves of fossil fuels that will not be usable if we are to achieve carbon reduction targets across the economy and so become “stranded”. Exposure to reserves data is often used as a proxy for downstream emissions.

The reserves exposure for each portfolio and for the Fund’s total equity holdings as at 31 December 2022 is shown in the graph below. The figures shown are on a value of holdings basis, which means the value of any company with fossil fuel reserves is included in full in the analysis, regardless of what proportion of their business relates to extraction.

Graphs showing reserves exposure December 2022. UK Passive 6.1% v benchmark of 17.2% World Developed Passive 4.9% v benchmark of 4.9% World Paris Aligned Passive 0% v benchmark of 4.9% Global High Alpha 3.7% v benchmark of 5.1% Smaller Companies 0.6% v benchmark of 2.5% Emerging Markets 4% v benchmark of 5.5% Sustainable Equities 0% v benchmark of 5.1% Sterling Corporate Bonds 0.5% v benchmark of 1.8% Total Fund 2.4% v benchmark of 6%

The following graph shows progress to date since March 2019.

Graph showing trend in reserves exposure since 2019: March 2019 = 9.3%, December 2019 = 6.3%, December 2020 = 3.8%, December 2021 = 2.8%, December 2022 = 2.4%

Overall, reserves exposure has fallen from 9.3% to 2.4% on a value of holdings basis. Coverage is around 70% of fund assets so this will equate to under 2% of total fund assets. During 2023, the Fund has consolidated its passive equity allocation into the World Paris Aligned benchmark fund which will have significantly reduced the Fund’s reserves exposure from the level shown in the graph above.

Engagement and Divestment

A key focus of the net zero commitment is on achieving real economy emissions reductions. That means we want to engage with the companies we are invested in and seek reductions in their emissions, not just divest. Divestment may make us look good, but is likely to have less impact on achieving real reductions in emissions across the global economy.

In practice the Fund will look to achieve its targets through a combination of investee companies reducing their emissions, and rebalancing portfolios to reduce their carbon footprint and reserves exposure.

The Devon Fund supports the Brunel Pension Partnership’s approach to climate change and engagement and divestment.