The Church of England (CofE) Pensions Board is around 10 years ahead on its 2050 net-zero target despite "ongoing challenges", after significantly reducing or excluding companies that are not aligned to the transition.

The board's Stewardship Report revealed that these changes resulted in holdings in oil and gas companies being reduced to 0.28 per cent of the fund.

In particular, the report highlighted the creation of the FTSE TPI Climate Transition Index, in which the board invests its passive portfolio, as the most significant contribution to progress.

More broadly, the report also drew attention to the board's use of engagement over the past year, including co-leading engagement for the global engagement initiative Climate Action 100+ with Shell.

However, it confirmed that the board will be shifting its focus going forward to industry sectors that demand energy from oil and gas companies, stepping down from leading engagement with Shell, to instead begin co-leading engagement with some of Europe’s largest car manufacturers: BMW, Mercedes-Benz, Renault and Volkswagen.

Indeed, the board already filed a climate lobbying shareholder proposal against VW earlier this year, although VW voted to reject this proposal at its recent annual general meeting.

This shift in focus was one of a number of priorities for the year ahead, alongside co-leading with BT Pension Fund and investor networks the development of the first public framework to assess government bonds on climate criteria through the ASCOR Project.

The report also confirmed that the board will consider how it and other pension funds can invest in support of the transition in emerging economies, and work in partnership with the United Nations to establish the first independent Global Tailings Institute to support implementation of the Global Industry Standard on tailings management.

This was in addition to plans to launch a Global Standard on Corporate Climate Lobbying, and chairing the Global Paris Aligned Investor Initiative (with Dutch fund APG) to oversee further evolution of the Net Zero Investment Framework for pension schemes.

Commenting on the report, CofE Pensions Board chief responsible investment officer, Adam Matthews, said: “As an investor in most sectors of the global economy, we take a universal view of our ownership of assets which means driving systemic change in the real economy that can impact whole sectors.

“We are willing to take a lead and establish global collaborations of investors to see the creation of global standards where they do not exist and drive alignment to those standards where they do exist.

“If the demand for energy doesn’t change, those companies that are supplying it won’t change. We have developed an exacting global net zero standard for the oil and gas sector, which companies that wish to retain their social license can implement.

“Ultimately those same companies’ ability to deliver on their targets will largely be shaped by a change in demand for oil and gas from sectors like autos, aviation and shipping.

“If you change demand you change supply and that is why as a fund we will be refocusing our engagement efforts on those demand sectors.”

Adding to this, Church of England Pensions Board chair, Clive Mather, emphasised that "despite the ongoing challenges of the global pandemic, in 2021 we achieved excellent investment returns, built on a foundation of responsible investment for a just and sustainable world".

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