Climate change is one of, if not the most significant challenge facing our society today, says David Russell, Head of Responsible Investment at USS. Here he explains what we are doing about it.
As a large pension scheme and major investor, we have invested significant resources into looking at the financial impact of the likely outcomes from unaddressed climate change and from any angle it makes for difficult reading.
But on the flipside, there is a major opportunity too. Now more than ever, governments around the world are making serious commitments to lowering greenhouse gas emissions. In April, as we celebrated World Earth Day 2021 the US, UK and others announced ambitious targets which would have been unlikely even one year ago.
And so today, USS is announcing its own ambition to become Net Zero by 2050 if not before.
Why 2050? Because it aligns with the Paris Agreement which was signed in 2015 and legally binds its signatories to limiting global warming to well below 2° and preferably to 1.5°. It also aligns with the UK government’s Net Zero ambitions.
So while 2050 may seem a long way off, there is much to do in order to create the short, medium and long-term steps that we need to make in order to reach our target.
This will involve a huge amount of work, for example in joining with other global investors like ourselves as well as policymakers to drive progress. We need everyone to work together to make this happen and create the right environment to encourage the management teams of the companies in which we invest to push for change.
There are also things that we can do ourselves, however, like ensuring Net Zero is top of mind when we make new investments and also in continuing to build on the more than £1 billion we have committed to renewables investments. We will increase our engagements with the assets in which we invest, with policy makers to encourage a smooth transition to a lower carbon economy, and with the external managers we use to invest the schemes resources more wisely. Many of the larger companies in which we invest directly have already made commitments to Net Zero but we can clearly do more to encourage others. We can also change the internal benchmarks we use to judge our performance to include more ESG and climate criteria.
Some progress has already been made. Last year USS Investment Management identified a number of sectors that we would no longer invest in. This is because we could see that mounting ESG risks had not been properly priced by the market and would ultimately damage the returns we could make from these investments. Therefore, thermal coal miners (specifically where this activity makes up more than 25% of a company’s revenues), were on the list. The burning of coal is responsible for 40% of carbon dioxide emissions worldwide and accounts for 70% of total greenhouse gas (GHG) emissions from the electricity sector.
We know we have a critical role to play in addressing climate change, an issue that impacts our members, employees, operations, portfolio companies, and the global economy. We are at the start of a journey but we want to play our part in creating the solution and we look forward to updating on our progress as our plans develop.