The UK’s largest workplace pension provider, has announced that it is replacing its blanket, top-down approach to one that more closely aligns with “real-world evidence” and “long-term outcomes” for its customers, according to the Scheme. The change came about following a “comprehensive literature review” by sustainable investment specialists Canbury, commissioned by People’s Pension.

A more ‘realistic’ goal

Instead of the singular, 1.5C-aligned goal applying to financed emissions across its entire portfolio, People’s Pension has decided to set targets on a case-by-case basis, which will reportedly better reflect the realities of the climate transition, where different asset classes, geographies, and sectors face unique levels of climate risk.

“We remain firm that climate change is a significant long-term financial risk, but that misaligned, or overly ambitious climate strategies can also harm our members if they rely on optimistic assumptions about the speed or nature of transition,” said Mark Condron, Chair of People’s Pension Trustee Board. “By grounding our approach in real-world evidence, we can back a credible transition while safeguarding the retirement outcomes our members rely on.”

Paris-aligned pensions

Despite this shift, the Scheme maintains that its broader net-zero ambition, as aligned with the Paris Agreement and its target of limiting global warming to well below 2C, still stands.

With reports that the world is set to temporarily exceed the Paris Agreement’s long-term 1.5C limit as early as the end of this decade, People’s Pension claims that its previously singular goal was “unrealistic” in terms of predicted portfolio decarbonisation, unnecessarily increasing risk for its seven million members with limited benefits. Instead of basing its targets on speculative climate policies, the Scheme is recommitting to an approach based on valuation discipline and risk control.

Highlighting the pivotal role that businesses, governments and the wider global economy play in emissions reduction, the Scheme maintains that reallocating investor portfolio capital is less important in the grand scheme of the transition, and that industry and policy engagement is where the Scheme can have a larger impact for its members while protecting their savings.

On the new plan, Chief Investment Officer of People’s Partnership (the provider of People’s Pension) Dan Mikulskis explained that, “Our industry understanding on how to [protect and grow our members’ savings] effectively has materially changed since we set our original portfolio-level target in 2019 (…) 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”.

The shift from People’s Pension follows news earlier this year that the Net Zero Asset Managers (NZAM) initiative, made up of over 250 asset managers, was relaunching without an explicit net-zero emissions by 2050 pledge.

Meanwhile, retirement savings and income giant Standard Life announced that it was reaffirming its 2050 net-zero target, after its success in hitting 2025 targets of cutting listed equity and credit portfolio emissions intensity by 25%.