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BT Pension Scheme

PRI reporting framework 2020

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

ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

13.1. Indicate whether the organisation carries out scenario analysis and/or modelling, and if it does, provide a description of the scenario analysis (by asset class, sector, strategic asset allocation, etc.).

Describe The Scheme participates in Mercer study which investigates the implications of climate change for investment returns and the investment strategy. In addition we are working with MSCI Carbon Delta on modelling future climate risks.

13.2. Indicate if your organisation considers ESG issues in strategic asset allocation and/or allocation of assets between sectors or geographic markets.

We do the following

13.3. Additional information. [OPTIONAL]

SG 13 CC.

13.4 CC. Describe how your organisation is using scenario analysis to manage climate-related risks and opportunities, including how the analysis has been interpreted, its results, and any future plans.


In 2019, the Scheme, together with a number of other institutional investors, partnered again with Mercer to update its 2015 study investigating the potential impact of climate change on investment returns. As part of this work, the impact of three different climate scenarios were evaluated (ranging from 2°C to 4°C warming) on the Scheme’s asset portfolio. Relative to the 2°C scenario, the potential negative impact on the Scheme’s expected annual return was up to 10 basis points, depending on timeframe. This impact is relatively modest, especially relative to some of the other investment risks the Scheme faces such as to interest rates, inflation and equity risk. However, given the deep uncertainties inherent in modelling the complex chain of manmade greenhouse gas (GHG) emissions, physical changes in the climate system and their potential socioeconomic consequences, it is recognised that continued monitoring is needed in this area. In addition, Mercer modelling includes a stress testing for a sudden shift which could result from an Inevitable Policy Response pathway.

We have also conducted analysis with the help of MSCI Carbon Delta on the Scheme's current investments and their alignment with different climate outcomes. This work has been very informative in understanding (a) the impact of transition vs physical risks faced by the portfolio and (b) which assets and sectors contribute the most risk. 

Lastly we have worked and consulted with groups around the impact of climate change on our long term asset class risk and return assumptions. In particular, Schroders have undertaken thoughtful analysis that we are factoring into our internal LT, climate change aware, risk-return expectations. 



The modelling and scenario work is very important as part of our strategy work determining the future mix of Scheme assets. As a gradually maturing pension Scheme, over time we typically allocate increasingly to fixed income assets, to both hedge our liability risk and generate income to pay our members. Understanding the timeframes for climate change impacts on different asset classes and sectors is a factor  informing the timing of our de-risking journey plan and, also which fixed income and bond like assets form part of our future asset mix. 

Recently we have expanded the range of bond-like assets in our investible universe, in part to create flexibility to allocate more capital to less liquid infrastructure and property assets, that combine both attractive income attributes with improved sustainability, and return outcomes less impacted by climate change than some traditional credit investments. 


Critically the scenario and modeling work allows us to better understand the magnitude of the risks and areas of our portfolio in which they reside most meaningfully. From this we can better focus and direct our engagement and stewardship activity to be most impactful. 

13.5 CC. Indicate who uses this analysis.

13.6 CC. Indicate whether your organisation has evaluated the potential impact of climate-related risks, beyond the investment time horizon, on its investment strategy.


The climate scenario analysis work we undertook in 2019 looked at impacts out to 2050 and the revised model will look at impacts to 2100.  This is beyond the investment time horizon that the Scheme typically focusses on. 

13.7 CC. Indicate whether a range of climate scenarios is used.

13.8 CC. Indicate the climate scenarios your organisation uses.

Scenario used
Institute for Sustainable Development

Other (1) please specify:

          Climate scenarios developed by Mercer

SG 14. Long term investment risks and opportunity

14.1. Some investment risks and opportunities arise as a result of long term trends. Indicate which of the following are considered.

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

other description

          Our engagement service provider, Hermes EOS, engages companies specifically with a view to enhance disclosure around climate-related risks.

14.3. Indicate which of the following tools the organisation uses to manage climate-related risks and opportunities.

14.4. If you selected disclosure on emissions risks, list any specific climate related disclosure tools or frameworks that you used.

The Scheme has a carbon and climate risk management process.  Please see the 2019 Report and Accounts for further information on this.

14.5. Additional information [Optional]

SG 14 CC.

14.6 CC. Provide further details on the key metric(s) used to assess climate-related risks and opportunities.

Metric Type
Metric Unit
Metric Methodology
Weighted average carbon intensity
          The Scheme does not currently invest according to a carbon intensity target however we are  in the process of putting one in place. Nevertheless, we are conscious of the data and methodological challenges noted by the Task Force. ESG factors are integrated into the Scheme's investment mandates and we believe measuring the Scheme’s carbon intensity will help facilitate dialogue with the Scheme’s managers, on the risks and opportunities of climate change within their portfolios, and that it could be an important first step in helping to prompt advancements in the development of decision-useful, climate-related risk metrics.
          Tonnes of carbon dioxide equivalents per million US dollars of revenue (tCO2e/US$m) for the equity, corporate bond and infrastructure portfolios. 

Tonnes of carbon dioxide equivalents per square meter of lettable floor (tCO2e/m2) for the property portfolio.
          The weighted average carbon intensity of the Scheme’s portfolios is calculated by summing the carbon intensity of each company (or property) according to its proportionate weight in the Scheme’s total portfolio as at 30 June 2019. 

The carbon intensity of an individual company is calculated by dividing the company’s GHG emissions (including direct emissions, ‘scope 1’, and indirect emissions from purchased electricity, ‘scope 2’) by the company’s annual revenue.

For the property portfolio, GHG emissions are divided by lettable floor area.

14.8 CC. Indicate whether climate-related risks are integrated into overall risk management and explain the risk management processes used for identifying, assessing and managing climate-related risks.

Please describe

The Scheme's climate and carbon risk management process includes the following pillars:

Risk register
Climate risk is monitored as part of the regular review of the Investment Committee risk register. Controls include ongoing monitoring by BTPSM of climate and carbon risk (with high risk exposures and incidents reported to the Investment Committee), an annual performance review of the Scheme comparing outcomes against expectations and investment beliefs, and regular asset class deep dives that include coverage of responsible investment and climate risk.

Scenario analysis
Use of a range of external publications and information sources as tools to help monitor climate change developments. The Scheme is also continuing to develop its quantitative scenario analysis, based on the Mercer study, and in parallel is developing narrative-driven climate change scenarios to help understand the potential implications for the Scheme’s assets of different transition pathways.

Monitor exposures
Assessment of the Scheme’s exposures to high and low carbon assets and to physical risks. MSCI Carbon delta allows us to monitor and manage how our current portfolio is positioned to climate outcomes. 

As part of its integrated approach to responsible investment, the Scheme undertakes three core risk management strategies which help mitigate the impact of all significant long-term risks on Scheme assets:

i) Investment Strategy
Climate and wider ESG considerations are included in our evaluation of asset classes and investment strategies. This is done through a combination of scenario analysis and the impact of climate change on long term return assumptions across asset classes including climate risk.

ii) Integrating ESG factors into manager selection and mandates
BTPSM ensures, where appropriate, that new and managers are properly integrating responsible investment into their investment processes. This means consideration is given to both risks and opportunities relating to ESG factors in most of the Scheme’s active and passive mandates.

ii) Engagement with companies and policymakers
Engagement on environmental matters is one of the core client objectives for our managers and Hermes EOS, covering a number of important issues including climate change risk, consumption of natural resources and pollution. With respect to climate change, their engagement is aimed at ensuring companies appropriately manage the risks and opportunities arising from climate change through board level oversight, strategic risk appraisal and target setting.

Further directly or through our managers or Hermes EOS we engage on public policy and market best practice. An example undertaken by Hermes EOS has been to support collaborative engagement initiatives on climate change by working with the IIGCC, Ceres in the US, the PRI and Climate Action 100+.

14.9 CC. Indicate whether your organisation, and/or external investment manager or service providers acting on your behalf, undertake active ownership activities to encourage TCFD adoption.

Please describe

The Scheme supports the recommendations made by the Task Force on Climate-related Financial Disclosures (TCFD), which aim to promote better disclosure of climate-related financial risks in order to improve understanding of the risks and opportunities of climate change. Engagement on environmental matters is one of the core client objectives for Hermes EOS and covers a number of important issues including climate change risk, natural resource efficiency and pollution. With respect to climate change, their engagement is aimed at ensuring companies manage the physical and transitional risks that climate change poses. This includes advocating for companies to set strategies consistent with the goals of the Paris Agreement, supported by appropriate management structures and clear disclosure – in particular, TCFD-aligned reporting that enables more reliable, consistent data to inform investment decision-making. Engagement is conducted via confidential, board and executive-level meetings and correspondence, supported, where appropriate, by speaking at AGMs, filing shareholder resolutions and proxy voting. In 2019, Hermes EOS engaged with all companies scoring 0 or 1 in the Transition Pathway Initiative assessment, which considers the quality of management of climate risk. Where companies were not taking sufficient action, Hermes EOS recommended voting against the Chair of the board, or other relevant board representatives, at the annual shareholder meeting.

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

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.

8 %

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.


Asset class invested

15 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

BTPS acts in the best interests of its members and invests in the low-carbon economy where the Scheme’s long-term risk adjusted return requirements are met. To date dedicated investments have been made including but not exclusively as follows:

  • £350million allocation to a specialist global renewable energy manager; and
  • In 2011, BTPS and the UK Government seeded the Hermes GPE Environmental Innovation fund with £75million and £50million respectively making investments in UK-based, low carbon and clean technology funds.

Asset class invested

20 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

The Scheme has invested directly in UK renewable infrastructure (offshore wind) assets as part of its broader 'Core UK Infrastructure' mandate.

Asset class invested

65 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

Our property portfolio is managed with a strong focus on sustainability and improving outcomes. The implementation framework centres around three themes: meaningful placemaking, climate & resource efficiency and health and wellbeing. It has to date led to eight large urban regeneration developments across the UK, spanning a combined 19m square feet. The portfolio has reduced its carbon intensity by over 23% over that period.

In 2019, Hermes - the Scheme's principal property manager, was rated A+ across the board, including on strategy and governance, which placed the property module by Hermes Real Estate in the top 10% of respondents. 

Asset class invested

15 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

Within the private credit portfolio, the Scheme has two mandates focused on lending to small & medium enterprises in UK and Europe

Asset class invested

10 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

In addition to meaningful affordable housing component (c. 30% of housing) of the estates, the Scheme has two direct affordable housing development programs

          Waste management

Asset class invested

1 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

Funding of Thames Tideway tunnel development which will collect sewag & rain water, currently going into the river, from across London

15.4. Please attach any supporting information you wish to include. [OPTIONAL]