Universities Superannuation Scheme (“USS”), the UK’s largest private pension scheme by assets under management, is today announcing important interim targets to achieving its ambition to be Net Zero for carbon1 generated by its investments by 2050, if not before.
The trustee has asked its internal investment team to work with the companies in its investment portfolio2 to cut the emissions they generate by 25% by 2025 and by 50% by 2030 relative to the 2019 baseline. These will be expressed in terms of emissions intensity (total carbon per £1 of assets under management).
One initiative that will support the Net Zero ambition is a new £500m Sustainable Growth mandate. This will be invested globally - either directly or through funds - in high growth, privately-owned businesses that are developing technologies and services that will help companies and the broader economy to decarbonise. This will complement the existing renewable energy strategy, which will continue to develop and invest in wind and solar generation capacity. As at 31 March 2021, USS had £1.2bn in wind farms and green technologies.
The Sustainable Growth mandate will be managed by the Private Markets Group within USS’s in-house investment management team and benefit the defined benefit and, over time, the defined contribution segments of the scheme.
These announcements come closely after the news of the trustee’s plans to introduce a climate “tilt” to a £5bn portion of its equity investments. This is expected to reduce Scope 1, 2 and 3 emissions3 by at least 30% from day one compared to the broad equity market, and will ensure that there will be further decreases in carbon intensity by 7% each year thereafter.
Bill Galvin, Group CEO of USS, said: “We hope that these announcements give confidence to our members and to other stakeholders of the seriousness with which we are treating decarbonisation. This is not an easy task, and along with the rest of the industry we will face challenges in the early years before the data quality improves, but these targets are a statement of intent, and give us important staging posts against which to assess our progress.
“The climate tilt and new investment mandate form part of a much bigger plan that will involve all of our investment professionals and the management teams of our portfolio companies. Indeed, we will need to work closely with our industry peers, regulators, governments and many others. Ultimately, we all need to work together to achieve Net Zero.”
Mike Powell, Head of the Private Markets Group, said: “The Sustainable Growth Mandate will not only support USS’s Net Zero ambition but will also enable members to reap the benefits of investing in a broader range of attractive companies who stand to benefit from the global energy transition.”
1 In this context, carbon is shorthand for Greenhouse gases.
2 This refers to emissions of private companies across USS’s public and private equity and debt portfolios.
3 Greenhouse gases produced as a result of owned or controlled sources, indirect emissions from the generation of purchased electricity, steam, heating or cooling consumed by the reporting company and all other indirect emissions that occur in a company’s value chain.