Articles - Investing for the low carbon revolution

The last couple of weeks have seen me return to the office for a few days a week. Seeing colleagues face to face, even just sitting in the office, was welcome change from working from home. The measures that Aviva have implemented to ensure the office is Covid secure are reassuring to everyone who’s elected to come back to the office, and after couple of weeks a new routine was starting to emerge. And then the rules changed.

 By Dale Critchley, Policy Manager, Aviva
 I have no burning need to go into the office, so under the new rules, I’m writing this from home.

 Working from home has been one of the biggest changes brought about by the Coronavirus crisis, one which has seen station platforms that would normally be teeming with activity, empty. Offices are eerily devoid of workers, and outlets in city centres closed for lack of footfall.

 A direct impact on pension scheme investments has come with the suspension of many property funds. As future demand for commercial property became less certain so the buildings that make up property funds, and the funds themselves, proved difficult to value accurately, triggering a suspension designed to protect savers. In the short term a potential extension of working from home will do little to bring certainty to this asset class or boost the value of companies reliant on commuters. In the medium term the FCA is consulting on whether those holding assets in some property funds will need to give 90 to 180 days’ notice of withdrawals. To allow fund managers to manage liquidity better.

 While the speed at which the UK’s white collar workforce adopted working from home couldn’t be predicted, perhaps the eventual position could. The enabler, as we have seen, has been the growth in technology which allows teams to work remotely, and the availability of fast domestic broadband. But in the absence of a pandemic, targets to control climate change may well have proved to be an agent of change.

 The impact that schemes have on climate change is something that the Pensions Minister sees as a top priority. A clause within the Pension Schemes Bill requires schemes to take into account the risks and opportunities that will be presented as the world economy transitions from one based on carbon to one aligned with the Paris Agreement. The DWP are also consulting on a requirement that schemes report on the impact their investments have on the climate, in line with the Taskforce on Climate-related Financial Disclosures (TCFD) proposals.

 The scale of the task of transitioning to net zero is enormous and will require wholesale changes to the world economy. To put things in perspective, global lockdown saw this year’s energy-based emissions fall by between 4% and 7%. To achieve net zero there needs to be a 90% reduction from current levels.

 Governments are getting on board - European Commission President Ursula von der Leyen confirmed last week that the EU would back a proposed 55% reduction in emissions, compared to 1990 levels, by 2030, on the way to net zero by 2050. 30% of EU’s Covid 19 recovery budget is earmarked for climate measures. Joe Biden has promised to spend $2trn over four years on low carbon infrastucture and energy, should he win the US election.

 All of this will create opportunities, but there are also threats. Lockdown saw ExxonMobil fall out of the Dow Jones Industrial Average for the first time since 1928. The changes required to economies to achieve net zero will be seismic in comparison to lockdown. Companies will need to re-invent themselves for a new world economy if they want to succeed, and trustees need to be looking at how they align their scheme’s investments strategy to take advantage of a low-carbon revolution. Not to just meet a legislative imperative, but to protect the futures of their members.


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