Swansea pension fund switches £500m to low carbon strategy

The City and County of Swansea Local Government Pension Scheme (LGPS) will swap around a quarter of its assets to a low carbon fund by the end of the month, it has announced.

The £2.1bn local authority scheme will transition £500m of equities into MSCI's world low-carbon target index fund, with BlackRock managing the assets, following trustee training on ESG issues.

The fund, which provides benefits for employees in Swansea and Neath Port Talbot, has now adopted an overall ESG policy to target a wide-ranging reduction in its carbon footprint.

Swansea Council deputy leader and pension fund committee chairman Clive Lloyd said a review of the fund's equity portfolio had led to a desire to reduce its listed equity exposure to fossil fuel companies by up to 50 per cent by 2022.

The transition began on 3 July, and will complete later this month. The fund went into this process with carbon-related exposure already at nine per cent less than the pension industry average, it said.

"As a committee, we recognise the risk that climate change poses to society in general as well as to the viability of pension funds like our own," said Lloyd. "But we also have to make sure that the return on our investments is enough to provide suitable pensions for our pensioners in the years to come.

"As a very long-term investor, we also need to ensure the money we manage and invest on behalf of our members balances the need for a sufficient investment return while at the same time reducing our exposure to carbon and fossil fuel-producing firms as we make the transition to a low carbon economy."

The LGPS fund is also actively seeking to invest in energy efficient infrastructure projects such as renewables, solar, alternative fuels and clean technology, while retaining optimised returns and having a positive environmental impact.

The move is part of a growing trend as leading funds look to enhance their environmental credentials and minimise climate-related risks. Last month, Aviva swapped to an ESG-focused default strategy for its defined contribution funds, while NEST recently announced it would completely divest from tobacco by 2022.

This article first appeared at Professional Pensions