Pension funds should spend less time worrying about how they will achieve their net zero ambitions and more time pursuing them, according to Jason Fletcher, CIO, London CIV.
Speaking at the Pensions and Lifetime Savings Association’s investment conference in Edinburgh at the end of May, Fletcher said: “We spend more time arguing about the correct measurements and we should be getting on doing stuff.”
Valuations have offered some comfort, but LGPS funds are open and are not looking to derisk.
In the current environment – even with generous discount rates – it is essential to find the right assets to avoid that “disaster scenario where CPI is higher than the discount rates and that’s higher than the returns.”
The challenge for London CIV clients is to get a real return while balancing risk and liquidity alongside their net zero commitments. All these must influence their asset allocation, said Fletcher, at a time when inflation is going to make things very difficult.
This is made more difficult when the overall investment strategy will be influenced by the member funds, half of which are still drawing up their own net zero targets.
Fletcher acknowledged that the myriad methods to measure carbon footprinting or climate impact remain a major challenge. And while TCFD reporting offers a promising framework, it is limited in its scope.
But that should not hold funds back from making their plans, said Fletcher.
“We know the direction of travel, we’ve got to do something about it,”, adding his concern that the course was currently “in the wrong direction”.
“Climate temperatures are still rising and we need to do something about it. We need to remove those roadblocks and get on with designing new products.”
London CIV manages around £26 billion of the 32 LGPS pension funds’ £46 billion of assets across 20 different active and more than 20 passive strategies.