London CIV completes Climate Risk Analysis for £8.7bn assets of London Local Authority Pension Funds

London CIV has completed its inaugural climate risk analysis, covering all of its listed equity, corporate fixed income and sovereign debt investments in order to mitigate risk arising from climate change. London CIV has gone beyond basic carbon foot-printing to understand other factors such as physical and transition risks, as well as how close the organisation is to achieving Paris alignment.

The results revealed that the London CIV fund offering had a lower Carbon Footprint than the MSCI World across all carbon intensity metrics, stemming mainly from a lower exposure to the utilities sector when compared with the benchmark.

The report also noted that the London CIV portfolio had a lower exposure to both fossil fuels and coal, when compared with the MSCI World. The total fossil fuel Value of Holdings (VOH) exposure was at 3.5%, vs 6.8% for the Benchmark, and the total Coal VOH exposure was at 1.9%, vs 3.8% for the Benchmark, according to data from Trucost, S&P Global.

However, the results also indicated that the London CIV consolidated equity and corporate fixed income exposure is unfortunately, not compatible with a warming below 2°C. Apportioned greenhouse gas emissions are approximately 11.5% (635,061 tCO2e[1]) above the 2°C carbon balance over the 2012-2025 period. Whilst this is lower than the corresponding benchmark’s emissions trajectory, (with apportioned emissions at 14.3% higher (819,017 tCO2e) than the carbon budget associated with a 2°C level of warming), London CIV are committed to achieving Paris alignment and will release its targets following extensive client consultation in 2021.

Jason Fletcher, Chief Investment Officer at London CIV said:

“Whilst we believe that climate change management may add value to client returns – we know that it definitely improves our risk outlook. Our commitment to analysing and reporting on climate risk, is not simply about collecting data but how we action this information throughout the design and selection of funds and critically, how we can better target areas for engagement to achieve better outcomes.”

Jacqueline Jackson, Head of Responsible Investment at London CIV said:

“As long-term investors, it was important that the analysis was not just a backward-looking carbon footprint, but an indication of our future risk in a range of different climate scenarios. We hope to use the findings of this analysis to drive action, not only within the London CIV but also amongst all of our Client Funds.”

London CIV has since committed to setting short, medium, and long-term targets in 2021 ahead of COP26 following further research, feasibility analysis and extensive client consultation.

London CIV has released its first standalone Climate Policy, inaugural TCFD Report and a detailed Climate Metrics Report which it will maintain and update annually to track progress against its climate goals and newly formed objectives.

[1] tCO2e stands for tonnes (t) of carbon dioxide (CO2) equivalent (e )