People’s Pension has enacted an updated climate approach, aiming to align its investment strategy more closely with real-world developments and long-term member outcomes.

The scheme said the revised approach was designed to better manage climate transition risks to asset values, adopting a more granular, bottom-up methodology that reflected differences across markets, sectors and asset classes.

As part of this, climate-related target setting will now be assessed on a case-by-case basis.

While the scheme has reaffirmed its commitment to a net-zero ambition aligned with the Paris Agreement, it has moved away from a single, top-down 1.5°C-aligned portfolio target as a binding investment constraint.

The decision follows growing concern that global emissions are not declining in line with pathways required to limit warming to 1.5°C, alongside a lack of anticipated policy action since the Paris framework was established.

People’s Pension also highlighted that the investment case for a low-carbon transition has varied significantly across regions and sectors, raising questions over the practicality of uniform portfolio-level decarbonisation targets.

As a result, the scheme warned that maintaining targets inconsistent with real-world conditions could introduce additional investment risk without delivering meaningful benefits.

Instead, the revised strategy places greater emphasis on valuation discipline and risk control, integrating climate considerations into portfolio construction based on financial materiality rather than on policy assumptions.

This includes exploring opportunities to invest in ‘transition leaders’ within carbon-intensive sectors, where fundamentals and valuations support long-term investment objectives.

The scheme stressed that emissions reductions would be driven primarily by companies, policymakers and the broader economy, rather than capital allocation decisions alone.

In line with this, it will continue to prioritise a stewardship-led approach, focusing on engagement with industry and policymakers where it believes it can have the greatest impact.

The updated framework follows a comprehensive review of academic and industry research commissioned from sustainable investment specialists Canbury, incorporating a range of perspectives on climate investing.

People’s Partnership chief investment officer, Dan Mikulskis, noted that the revised approach reflected an "evolution" in industry understanding since the scheme first set portfolio-level climate targets in 2019.

“This updated approach demonstrates a robust evidence-based process to support climate action that is grounded in a clear objective: to protect and grow our members’ savings," he said.

“Our industry understanding on how to do this effectively has materially changed since we set our original portfolio-level target in 2019, and we have a fiduciary responsibility to evolve and adapt to those developments.

“Additionally, there is seven years of evidence on market-wide decarbonisation and policy change that we believe needs to be adapted to.

"We believe the retention of a Paris-aligned ambition is important, but it must be rooted in bottom-up realities as to the role that investors can play in achieving it to ensure better outcomes for our members.”

People’s Pension trustee board chair, Mark Condron, added that while climate change remained a significant long-term financial risk, overly ambitious or misaligned strategies could also negatively affect members.

“Our updated climate approach makes this explicit, and we believe being robustly transparent about this, both to our members and the wider market, is critical," he said.

“By grounding our approach in real world evidence, we can back a credible transition while safeguarding the retirement outcomes our members rely on.”

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