Local Government Pension Scheme (LGPS) pool, Border to Coast Pensions Partnership, has reduced financed emissions for in-scope assets by 66 per cent since 2019, meaning that it is ahead of 2025 emissions target by 13 per cent and on track for its 2030 goal.

The progress, outlined in its annual Responsible Investment and Stewardship and Climate Change reports, was attributed to a combination of factors, including improved carbon profiles in existing assets, portfolio restructuring, the launch of lower-carbon sub-funds, and reduced exposure to higher-emitting companies.

The report also highlighted a continued focus on engagement, revealing that, in 2024, Border to Coast engaged with firms responsible for over 78 per cent of its financed emissions, carrying out 1,919 engagements in 2024 on a range of long-term issues.

Around 41 per cent of engagements focused on business strategy and governance, 31 per cent on environmental concerns, and 20 per cent on social issues.

Border to Coast stewardship manager, Colin Baines, said environmental, social and governance factors are not a “nice to have” for investors, but are “fundamental drivers of financial value”.

“We stand by our belief that active engagement with companies is the most effective way to influence real change,” Baines said.

Over the past year, the pool also strengthened its responsible investment policies, voting against management at companies involved in high deforestation-risk commodities such as palm oil, beef, and paper, particularly where environmental impact reduction policies are lacking.

It also made changes where this engagement has not been effective, as its report confirmed that the pool disinvested from HarbourVest Global Private Equity in June, citing concerns about social and governance risks in its largest investment, China-based fashion retailer Shein.

The group said that allegations of labour exploitation and opaque supply chain management, particularly in relation to cotton sourcing from Xinjiang, contributed to concerns.

The pool actively engaged with the fund to seek clarification on Shein’s labour practices and the due diligence conducted, but said that the inability to obtain satisfactory evidence of adherence to international labour standards left it concerned about the potential risks to its investment and reputation.

Additionally, the pool had concerns regarding HarbourVest Global Private Equity's high fee structure, as its total fees were among the highest across the investment trusts it analysed.

The combination of these issues led to Border to Coast's decision to disinvest, as it said HarbourVest no longer aligned with its investment objectives and risk tolerance.

But the pool also identified opportunities as part of its responsible investment work, identifying specific opportunities in listed equity and fixed income investments to support companies contributing to a lower-carbon economy.

Indeed, in April 2024, the pool secured an additional £1.2bn in partner funds commitments to invest in its climate opportunities strategy - a private markets, multi-asset strategy that focuses on a variety of projects outside public stock markets.

This strategy aims to support the transition to a lower-carbon economy, including initiatives such as waste-to-energy projects and EV charging points across the UK.

Despite the improvements, the group revealed a slight dip in the proportion of its equity and fixed income portfolios covered by its net-zero roadmap that is invested in climate solutions, falling from £8bn in 2024 to £6.8bn in 2025.

This decrease was due to a fall in the total assets under management in these portfolios as a result of partner fund asset allocation decisions, and a decrease in the percentage of AUM considered to be invested in climate solutions in the Global Equity Alpha and Sterling Investment Grade Credit sub-funds.

However, increases were seen elsewhere, as Border to Coast confirmed that its private markets portfolio includes around £3.9bn of capital committed to investments in climate solutions, up from £2.5bn in 2024, with around £1.4bn invested, up from £990m in 2024.

The pool also committed to improving its asset class coverage as it goes forward.

In particular, the pool said that, in addition to the inclusion of the recently launched Global Multi-factor Equity Index Fund, it will also be including the Sterling Index Linked Bond Fund in 2025, noting the different calculation methodology for sovereign bonds.

It is anticipated that real estate will also be included in the net-zero roadmap in 2026 with private markets and multi-asset credit expected to follow in 2027, subject to data availability, quality, and established calculation methodologies.

However, data limitations are still having an impact, as the pool confirmed that it had held off on sharing the quantitative results from its climate scenario analysis due to the limitations of the models, such as insufficient accounting for policy changes, technological advancements, and the extent to which companies follow their transition plans.

The pool said it sees scenario analysis as a guide, not a prediction, to help understand climate risks and opportunities, rather than a precise forecast.

"The limitations of existing models highlight the need for care, consideration, and contextualisation, in making sense of the outputs," it stated.

These limitations reflect broader challenges across the sector, with pension organisations having previously faced concerns that they could be relying on flawed climate risk advice, with worries that some climate scenarios may show impacts that seem at odds with established science.

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