The Brunel Pension Partnership has announced a new climate policy which threatens to remove asset managers who fail to perform on climate related issues.

The organisation published the policy to challenge the asset management industry, which is described as "not fit for purpose".

The partnership, one of eight pooled Local Government Pension Scheme (LGPS) funds in the UK, announced that the five point plan is designed to help build a financial system which is “fit for a carbon-zero future”.

The policy states that between now and 2022, Brunel will demand that its material holdings act to bring their emissions in line with Paris benchmarks, advancing at least one level on the TPI management quality staircase each year, with an overall goal for all material holdings to be on TPI level 4 by 2022.

Any that fail to meet these new requirements will risk votes against the re-appointment of board members, or being removed from Brunel’s portfolios when the partnership undertakes a stocktake of its new policy’s effectiveness in 2022.

The partnership will also challenge its investment managers to demonstrate reduced exposure to climate risk and effective corporate engagement that would put portfolios on a trajectory to align with a 2°C economy, stating that any managers who “fail to do so will be replaced”.

Brunel Pension Partnership chief investment officer, Mark Mansley, said: “Climate change is a rapidly escalating investment issue. We found that the finance sector is part of the problem, when it could and should be part of the solution for addressing climate change.

“How the sector prices assets, manages risk, and benchmarks performance all need to be challenged.”

The plan was designed following the procurement of asset managers by the partnership for its 10 LGPS clients, and involved a consultation process with both Brunel clients and other stakeholders in the local government finance sector.

The partnership also considered insight from 130 asset managers and reviewed 530 investment strategies from a climate perspective when creating the plan, identifying an emphasis on short-term rather than long-term performance, as well as an unwillingness by
asset managers to invest in the low carbon economy.

The firm pointed out issues stemming from backward-looking investment risk models, which it said were “inherently flawed”, as well as highlighting: “instances of perverse incentives and conflicts of interest throughout the system”.

Following its announcement, the policy has received support from clients, with the Wiltshire Pension Fund confirming that it has allocated approximately 20 per cent of their assets into Brunel’s Low Carbon Passive Equity portfolio.

Robeco, which is one of Brunel's asset managers, head of active ownership, Carola van Lamoen, also stated: "We consider it essential that asset owners and asset managers band together through collaborative initiatives to make real progress in decarbonization.”

Environment Agency chair, Emma Howard Boyd, added: “Now is the time for everyone in the finance sector to show leadership in response to the climate emergency.

“As investors we have a responsibility to our beneficiaries to ensure the assets entrusted to us are resilient to climate risks."

Currently, the partnership already allocates 35 per cent of client infrastructure portfolio investments to renewable energy funds.

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