A central part of that strategy involves assessing risk and putting in place appropriate mitigation. We believe that climate change is a major systemic investment risk which we need to address. At the same time we recognise that solutions to mitigate the climate crisis could in themselves represent investment opportunities. Climate change is therefore a key consideration within our strategy for delivering appropriate long-term risk adjusted returns for the Scheme.
Current scientific thought is that global emissions must be reduced to net zero by 2050 to limit global temperature increases to 1.5°C above pre-industrial levels. The term ‘net zero’ refers to a state in which the amount of greenhouse gas (GHG) emissions put into the atmosphere is the same as the amount that is removed, resulting in no net impact on the climate from GHG emissions.
With support and advice from our investment and other advisors, we have carefully considered the scientific information on climate change available today and how we believe it to be relevant to the Scheme and, specifically, to our investment strategy. Following this process, we believe that a net zero target forms a sound overall basis for the Scheme to mitigate climate related investment risks and maximise climate related investment opportunities. As a result, recognising that we believe this to be in the best long-term financial interest of our members:
Our target is for our investment portfolio to have net zero GHG emissions by 2050.
We believe that successful implementation of this strategy will require us to focus on two principal objectives:
- Decarbonising our investment portfolios over the period to 2050 in a way that delivers appropriate risk-adjusted financial returns to the Scheme. We believe that active engagement is the best way to achieve this.
- Increasing our investment in a range of climate solutions, appropriately recognising the opportunities which they present in generating appropriate long-term risk adjusted returns as part of the journey to 2050 and beyond.
Our approach will be reviewed regularly to consider updates in underlying scientific thinking, developing legal and regulatory requirements and other changes which might affect the climate-related risk and opportunity profile of our investments.
Our strategy will include consideration of the following potential steps towards net zero:
- Climate risks and opportunities: Assess and manage our portfolio’s exposure to climate risks and seek investment opportunities created by the global transition to a net zero economy.
- Investment value chain: Explicitly include net zero in our manager selection, appointment and monitoring frameworks - as part of a broader, balanced assessment of their performance.
- Active stewardship and voting: Recognise the potential influence that we can apply (directly or indirectly) as asset holders in relation to climate change and consider how best to use this influence in the context of our investment objectives.
- Industry collaboration: Seek to collaborate, as appropriate, with our peers, standard setters, and policymakers, recognising the scale of this challenge.
- Monitoring and reporting: Track and disclose our progress on climate related matters in our annual Task Force on Climate-related Financial Disclosures (TCFD) reporting and Implementation Statements.
Issued by the Trustee of the BAE Systems Pension Scheme