The use of carbon offsetting as a climate strategy for pension schemes is typically “smoke and mirrors” that does little to contribute towards the transition to net zero, according to B&CE chief investment officer, Nico Aspinall.

Speaking at the Pensions Age Autumn Conference 2021, Aspinall explained that whilst there are steps that businesses can take to utilise carbon offsetting, overall, they are not as helpful to the environment as some may assume.

He stated: “Carbon offsetting doesn't stop any carbon dioxide from being emitted, it just makes someone else try and put that carbon dioxide back in the ground.

"But that carbon dioxide came from the Carboniferous period, more than 600 million years ago, so unless you've got a 600 million year commitment for those carbon offsets, we think it’s smoke and mirrors.

“There may well be things that business can do individually to carbon offset and be on that journey towards net zero, but we think overall it's something that enables us not to do anything as opposed to doing something.”

Instead of relying on carbon offsetting, Aspinall noted that The People's Pension has invested in multi-factor funds, explaining that when this was constructed, the scheme queried whether it was possible to have less exposure to fossil fuels, to minimise exposure to liability and transition risk.

“And by just comparing the two portfolios, one with fossil fuels unconstrained and one with fossil fuels constrained, we realised actually they had pretty much exactly the same performance,” he said.

“We think we've gone further than any other master trust in doing that. We made our first investment in that fund in 2018, and it's about £1.5bn now in the multi-factor fund.”

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