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Church Pension Fund

PRI reporting framework 2018

You are in Strategy and Governance » ESG issues in asset allocation

ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

New selection options have been added to this indicator. Please review your prefilled responses carefully.

13.1. Indicate if your organisation executes scenario analysis and/or modelling in which the risk profile of future ESG trends at portfolio level is calculated.

13.3. Additional information. [OPTIONAL]

The Church Pension Fund avoids investment i different sectors such as weaponry, alcohol, tobacco, adult entertainment and gambling. In addition, our segregated mandates and large portion of mutual funds avoid investment in fossil fuel heavy assets, coal mining companies etc.  We also invest in low carbon index funds, and renewable energy themed funds. ESG can also impact regional asset allocation decisions.


SG 14. Long term investment risks and opportunity

14.1. Describe the process used to identify short, medium and long-term risks and opportunities that could have a material impact on your organisation and its activities.

For the Church Pension Fund this process works in different phases:

Policies and strategies: The Church Pension Fund updates the risk management plan annually, as well as the investment plan. In addition, the Pension Fund updates the longer-term investment strategy every three years. In addition, the RI Guidelines (2014), and the Climate Change Strategy (2016) are updated regulary.

Portfolio analysis: The Pension Fund conducts annual ALM and porfolio analysis projects. Bi-annual portfolio screenings on norm breaches, specific sectors and fossil fuel related companies.

Investment process: Risk and opportunities are evaluated separately for every new investment decision in all asset-classes. Continous follow-up with asset managers.

Allocation decision-making: closer market review and portfolio assessment every second week.

Continous monitoring: through portfolio management system - liquidity, currency, allocation and other risk limits to be monitored daily.

 

14.1 CC. Describe the processes used to determine which climate-related short, medium and long-term risks and opportunities could have a material impact on your organisation and its activities.

Please see process description in previous question 14.1.

14.2. Some investment risks and opportunities arise as a result of long term trends. Indicate which of the following you act on.

14.2a cc. Please describe how you define “short”, “medium” and “long term”, and describe your material climate-related issues over these time horizons.

Definition
Description of material climate-related issues
Short term
          1 year
        
          Extreme weather events
        
Medium term
          1-10 years
        
          Extreme weather events, policy and legal actions, low carbon technology and renewable energy development, increased water scarcity
        
Long term
          10-20 years and beyond
        
          Extreme weather events, policy and legal actions, low carbon technology and renewable energy development, water scarcity and migration waves
        

14.3. Indicate which of the following activities you have undertaken to respond to climate change risk and opportunity

other description

          Encouraged companies to report on their emissions and climate change strategies as a signatory of the CDP and Carbon Action.
        

14.4. Indicate which of the following tools you use to manage emissions risks and opportunities

14.4a CC. Please provide further details on these key metric(s) used to assess climate related risks and opportunities.

Metric Type
Coverage
Purpose
Metric Unit
Metric Methodology
Metric Trend
Limitations / Weaknesses
Carbon footprint (scope 1 and 2)
          Listed equities funds and mandates
        
          KPI for climate strategy annual monitoring
        
          
        
          Also checking % GHG data reported
        
          New metric
        
          Not including a broader scope 3, not all companies reporting and not all managers use estimates
        
Carbon intensity
          Listed equities funds/mandates and corporate bond funds
        
          KPI for climate strategy annual monitoring
        
          
        
          emissions/sales
        
          New metric
        
          Weak reporting capabilities for corporate bond funds, High Yield especially
        
Exposure to carbon-related assets
          Listed equity funds/mandates and corporate bond funds
        
          Follow fund manager exposire to sector and use results for engagement
        
          Over 25 % of revenue
        
          Companies that derive more than 25% of their revenue from coal mining or other
fossil fuel operations
        
          New metric
        
          Not separating between pure fossil fuel and renewable energy operations
        

14.6. Additional information [Optional]

14.7 CC. Describe your risk management processes for identifying, assessing, and managing climate-related risks.

Please describe

For the Church Pension Fund this risk management process works in different phases:

Policies and strategies: The Church Pension Fund updates the risk management plan annually, as well as the investment plan. In addition, the Pension Fund updates the longer-term investment strategy every three years. In addition, the RI Guidelines (2014), and the Climate Change Strategy (2016) are updated regulary. The Climate Change Strategy includes a range of KPIs that are annually reported on and set the closer agenda for climate change work within the portfolio.

Portfolio analysis: The Pension Fund conducts annual ALM and porfolio analysis projects. Bi-annual portfolio screenings on norm breaches, specific sectors and fossil fuel related companies.

Investment process: Risk and opportunities are evaluated separately for every new investment decision in all asset-classes. Continous follow-up with asset managers.

Allocation decision-making: closer market review and portfolio assessment every second week.

Continous monitoring: through portfolio management system - liquidity, currency, allocation and other limits to be monitored daily.

14.8 CC. Describe your processes for prioritising climate-related risks.

The changes resulting from climate change represent new risks and opportunities for investors. In practice, this means that the efforts of companies and states to control climate change will have a gradual impact on the return and risk development of the Church Pension Fund’s investment operations. Climate change work is an integral part of risk management within the Church Pension Fund's investment operations. The key task of the Church Pension Fund is to ensure the payment of pensions to Church employees, now and in the future.


The financial impacts of climate change on global markets and sectors are multidimensional and vary along with the different global warming scenarios. The risks induced by climate change are especially critical in sectors with high greenhouse gas emissions, such as utilities, basic industries and energy production. The climate impacts are significant also in the agriculture and forestry sectors as well.

As an owner and investor, the Church Pension Fund wants to encourage companies to address climate change in a suitable manner for their own business operations. As a signatory of the Carbon Disclosure Project (CDP), the Church Pension Fund is involved in encouraging companies all over the world to report on their own climate change efforts. Comprehensive reporting provides the Church Pension Fund with better investment analyses of a company’s actual profit and risk prospects and of the commitment of company management to long-term climate change development.

The goal of the Church Pension Fund is to consistently reduce the carbon footprint of its investment operations. In November 2015, the Church Pension Fund signed the investors' Montréal Carbon Pledge. By participating in the initiative, the Church Pension Fund pledges to report annually on the carbon footprint of its investments.
In order to reduce the carbon footprint of its investment operations, the Church Pension Fund has identified a set of climate change tools. The applicable tools and their uses vary in accordance with the different asset classes.

The primary tools of the Church Pension Fund include the ESG analysis (A.) and engagement activities (B.), which can be used in all asset classes. Green investments (C.) also play a key role, since they are necessary for the development of new low-carbon solutions within different sectors and form the so-called positive carbon handprint. Carbon reporting (D.) provides the Church Pension Fund with an up-to-date picture of the climate risks of its investments. Exclusion criteria (E.) in fossil fuel investments reduce the Church Pension Fund’s carbon risk in direct equity investments and serve as a basis for discourse with asset managers. Low-carbon index products (F.) are noteworthy options in terms of passive equity investments.

14.9 CC. Do you conduct engagement activity with investee companies to encourage better disclosure and practices around climate-related risks?

Please describe

Through investor initiatives such as CDP and Climate Action 100+.

Our engagement service providers engage with companies on our behalf regarding environmental and climate-related risks. We participate in a specific theme engagement on carbon risk, were we target 20 utilities companies for closer dialogue over a period of 2 years. There has already been positive results: many previously non-reporting companies have started to report on their emission reduction targets.

 

14.10 CC. Describe how you use data from climate-related disclosures.

Our external asset managers use this data, as well as our engagement service provider.


SG 15. Allocation of assets to environmental and social themed areas

New selection options have been added to this indicator. Please review your prefilled responses carefully.

15.1. Indicate if your organisation allocates assets to, or manages, funds based on specific environmental and social themed areas.

15.2. Indicate the percentage of your total AUM invested in environmental and social themed areas.

4.4 %

15.3. Specify which thematic area(s) you invest in, indicate the percentage of your AUM in the particular asset class and provide a brief description.

Area

Asset class invested

5.0 % of AUM

Brief description and measures of investment

Four clean technology and renewable energy funds.

Asset class invested

5.4 % of AUM

Brief description and measures of investment

One Nordic forest fund committed to PEFC certifications and carbon calculations.

Asset class invested

Brief description and measures of investment

Two microcredit funds.

Asset class invested

Brief description and measures of investment

One domestic SME financing fund.

Asset class invested

6.0 % of AUM

Brief description and measures of investment

Healtcare sector/ sustainability focus in two global funds.


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