Climate change

Climate change represents potentially significant risks for the assets in which we invest. The way in which our investee companies and assets manage these risks is therefore a key concern, in line with our responsibility to safeguard the fund for the long-term benefit of our members. We expect companies in which we invest to analyse climate change risks, both in terms of their carbon emissions and how they are adapting to a changing climate, and to develop mitigation plans.

There are three key areas in which we undertake activity on climate change:

  • Encouraging disclosure of carbon emissions and information on how companies/assets are managing climate risks. In 2015, for example, we voted in favour of resolutions by BP and Royal Dutch Shell requiring those companies to provide detailed annual reporting on carbon and climate change from 2016.
  • Engaging with companies to encourage better management of climate risk. We regularly discuss climate change at meetings with companies, as part of our ongoing engagement. Targets of such engagement include major companies in the oil and gas and mining sectors.
  • Engaging with policy makers to ensure appropriate climate change policies are established to encourage the transition to a low carbon economy. Most of our engagement with policy makers on climate change is conducted through the Institutional Investors Group on Climate Change (IIGCC). Over the years, USS has met with policy makers from governments from across the EU, the European Commission itself, the UK government and also representatives from the Australian government and the Province of Alberta (the home of oil sands).

USS has in excess of £700m in committed financing to UK renewables. Investments include L1 Renewables which is USS's wholly owned renewable lending platform established in 2014. L1 Renewables supports UK onshore wind projects and project finance loans to operational wind farms. L1 Renewables has a total commitment of circa £520m. In 2017 USS has recently acquired direct equity interests in a number of offshore wind farms from a sale by the UK government of the Green Investment Bank. The scheme has c. £360 million invested in timberland which acts as a carbon sink. These investments have been made by USS Investment Management based on the attractiveness of the risk adjusted returns consistent with our fiduciary duties.

In May 2015, USS was a signatory to a letter to G7 Finance Ministers urging them to support the long term global emissions reduction goal in the proposed Paris agreement and to submit short to medium-term action plans at a national level. A decarbonisation goal was reflected in the final Summit communique. The fund engaged with companies regarding their actions in response to COP21 during the course of 2016.

Transition Pathway Initiative (TPI)

USS was one of eighteen asset owners and managers to launch the Transition Pathway Initiative (TPI) at the London Stock Exchange in January 2017. The TPI assesses how individual companies are positioning themselves for the transition to a low-carbon economy through an online tool. As a long-term investor USS wants to be able to assess how companies are managing climate change and the risks it poses to their business. The TPI provides tools for us to do this and offers a basis upon which to identify company specific engagement areas on climate change, and a process for tracking the effectiveness of that engagement. The initiative helps us to make better informed investment decisions, improving financial returns for our members and beneficiaries. See Transition Pathway Initiative.

‘Aiming for A’ Climate Change resolutions

USS co-filed resolutions on climate change related issues at three UK listed diversified mining companies; Rio Tinto, Anglo American and Glencore in 2016. All three companies have thermal coal resources, and the resolution focussed on how the companies were managing the transition to a 2 degree world. Unusually, the shareholder proposals were supported by an overwhelming majority as management, in each case, recommended that shareholders vote in favour. This reflected the success of engagement and the industry’s progress on these issues in the UK. Similar shareholder proposals were submitted by USS’s peers to a number of US companies. However, as management did not support the resolutions, a majority of shareholders voted against them. See Investors on climate change.

A longstanding and ongoing commitment to climate change action

USS was among the first pension funds globally to recognise the potential implications of climate change for long-term investors.

In 2001 we published an industry leading discussion paper: Climate Change: a Risk Management Challenge for Institutional Investors. Later that year we co-founded the Institutional Investors Group on Climate Change (IIGCC), which provides a forum for European institutional investors to collectively engage with policymakers on the long-term risks and opportunities of climate change. The scheme made its first investment dedicated to renewables and clean tech in 2000.

In the years since, we have demonstrated our leadership on the issue of climate change by constantly advocating for it to be squarely on the agenda of institutional investors.

  • IIGCC: USS provided the first ever Chairman for the IIGC and continues to hold a position as advisor to the Board. The organisation has developed Global Climate Change Disclosure Frameworks setting out investor expectations of disclosure from companies in industry sectors (including automotive, oil and gas, and electricity).
  • CDP: We have been a signatory to CDP (formerly the Carbon Disclosure Project) since its first iteration in 2002. CDP offers a framework for companies to follow when providing key climate change data to their investors.

CDP collects data from major corporations around the globe. Responses to CDP include:

  • Comprehensive corporate greenhouse gas emissions data
  • Information on corporate emissions reduction targets and energy use
  • Information on risks and opportunities companies face from climate change
  • Management discussion and analysis on strategies to address climate change – including emissions trading

The data are requested on behalf of 722 global institutional investors, including USS, with more than $87 trillion in assets under management (as of July 2013). It provides investors with information that may be useful in both investment decision-making processes and engagement.

CDP also works with multinational organizations to facilitate the collection of climate change relevant data for their supply chains.

  • GRESB: In 2009 we established the first environmental and climate change benchmark for property funds, the Global Real Estate Sustainability Benchmark (GRESB), in collaboration with other European pension funds and Maastricht University.

UN Climate Change Conference, Paris, December 2015

We believe that with the right support from policy makers, there will be significant opportunities for investment in low-carbon and climate resilient opportunities, and climate impacts and resulting economic damages can be mitigated.

USS participated in the COP in Paris in December 2015, directly attending some events and demonstrating our support for the actions of the IIGCC.

Whilst the outcome of the COP, the Paris Agreement, is only the start of the process, and much more will need to be done, it is a positive signal to investors of the direction of travel to a lower carbon world.

Montréal Pledge

Since 2009 we have analysed the carbon footprint of our public equity portfolio and sought to factor climate change considerations into our investment decisions where it has a financial bearing.

In 2015 we became a signatory to the Montréal Pledge, committing to measure and publicly disclose the carbon footprint of our investment portfolio on an annual basis. As part of this commitment we benchmark our carbon footprint against external indices. In September 2015, the carbon intensity of our internally managed public equity portfolio was 18% below the MSCI All Country World Index and 15% below the fund's own composite index.

Read more about our carbon footprinting and commitment to the Montréal Pledge.

USS Position on ShareAction Green Light Report Actions

In 2013, campaign organisation ShareAction published its Green Light Report, which recommended action that pension funds could take to address climate change risks. In response to a request from the Universities and College Union (UCU), we published a document outlining how the trustee was addressing the issues the report highlighted.

Carbon Footprinting

USS has undertaken carbon footprints of its public equities portfolio for a number of years, and is a signatory to the Montreal Pledge. The scheme has also undertaken carbon footprinting for a range of other asset classes in order to identify potential climate and carbon related risks across its portfolios. Such cross-fund footprinting is rare, and the methodologies for undertaking them are still under development. In order to encourage this development, USS has worked with a number of European pension funds to publish a document outlining the group’s views on the methodological challenges facing the process and what can be done to address them. This document, If carbon footprinting is the answer, then what is the question? A group of asset owners reflect on current practice in carbon reporting, can be found here.

The Taskforce on Climate related Financial Disclosures

In 2017, the Taskforce on Climate related Financial Disclosures (TCFD) published its recommendations for improved transparency by companies and their investors with respect to how they were managing climate change risks and opportunities. The TCFD’s recommendations apply to asset owners like USS and we fully support this initiative. USS has responded to TCFD’s questions and you can read our comments here.

Last updated: about 11 months ago