Church of England Pensions Board Slashes Carbon Intensity by a Fifth

UK asset owner now 10 years ahead of net zero target; switches climate engagement focus to auto sector.

The Church of England Pensions Board (CEPB) has cut the carbon intensity of its £3.7 billion portfolio by more than 20% over the past 12 months – putting it 10 years ahead of its own schedule.

This week the pension fund – which manages the retirement assets of current and former employees of the Church of England – revealed its latest Stewardship Report, in which it stated that it was a decade ahead of its target in achieving net zero carbon emissions across its investments.

The CEPB has significantly cut back on exposures to “companies that are not aligning to the transition” to a low-carbon global energy system. This has resulted in the fund reducing its holdings in oil and gas companies to just 0.28% of its overall portfolio, it said in a statement.

In addition, it now holds investments in “climate solutions/green revenues” worth 12 times that of its residual oil and gas exposure, amounting to almost £119 million across public and private markets.

Adam Matthews, the CEPB’s Chief Responsible Investment Officer, said: “As an investor in most sectors of the global economy, we take a universal view of our ownership of assets which means driving systemic change in the real economy that can impact whole sectors.

“We are willing to take a lead and establish global collaborations of investors to see the creation of global standards where they do not exist and drive alignment to those standards where they do exist.”

On the road to net zero

Over the course of 2021, the pension fund reduced the carbon intensity of its portfolio from 93.6 tonnes of CO2 per million dollars to 74.3 – amounting to a 20.6% reduction.

The “most significant contribution” to the CEPB’s carbon reduction work has been its investment in a bespoke equity benchmark set up in 2019. The pension fund has invested its passive equity portfolio in the FTSE TPI Climate Transition index, which uses forward-looking data from the Transition Pathway Initiative (TPI) to assess companies’ alignment with the Paris Agreement and net zero aims.

The CEPB, which chairs the TPI, described last year as marking a “coming of age” for the project. It secured funding to substantially expand TPI’s reach to cover more than 10,000 listed companies, up from 479 under the current model – through the establishment of the TPI Global Climate Transition Centre within the London School of Economics’ Grantham Research Institute.

In addition, the board’s Stewardship Report detailed several other activities that contributed to the reduction in its carbon footprint. It excluded 467 companies from its portfolio, including 28 new exclusions based on climate change criteria.

The pension fund engaged with 65 companies about climate-related lobbying in an attempt to shed light on how corporates are engaging with governments on climate change and environmental policy issues.

CEPB has also teamed up with the BT Pension Scheme and other partners to develop a climate assessment model for sovereign debt, and led collaborative work on creating a Net Zero Standard for the oil and gas sector. It has also led on engagement with the mining sector on a number of issues, including climate change.

Matthews told ESG Investor last year it was important to get into the detail of climate data in order to achieve real progress through corporate engagement.

A shifting engagement focus

The CEPB has been a leading investor voice in collaborative efforts to push major oil and gas companies to improve their environmental credentials and address their contributions to climate change.

Most notably, the pension fund co-led a multi-year engagement with oil giant Shell through the Climate Action 100+ initiative. Shell set a transition strategy last year but has continued to face criticism for not reducing its net carbon intensity more quickly.

The CEPB intends to move its engagement focus from oil and gas to industries that are the biggest consumers of fossil fuels – starting with the automotive sector.

“If the demand for energy doesn’t change, those companies that are supplying it won’t change,” said Matthews. “We have developed an exacting global net zero standard for the oil and gas sector, which companies that wish to retain their social license can implement.

“Ultimately those same companies’ ability to deliver on their targets will largely be shaped by a change in demand for oil and gas from sectors like autos, aviation and shipping. If you change demand you change supply, and that is why as a fund we will be refocusing our engagement efforts on those demand sectors.”

Specifically, the CEPB stated that it would begin co-leading shareholder engagement work with BMW, Mercedes-Benz, Renault, and Volkswagen.

It has already stated its intention to vote against the management and supervisory boards at Volkswagen’s AGM on 12 May, with the support of Swedish and Danish pension funds as well as Schroders and EOS at Federated Hermes.

The intended action comes after the German carmaker rejected a shareholder proposal put forward by the CEPB and other investors calling for clarity over its lobbying activities.


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