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BT Pension Scheme

PRI reporting framework 2020

You are in Strategy and Governance » Investment policy

Investment policy

SG 01. RI policy and coverage

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

01.1. Indicate if you have an investment policy that covers your responsible investment approach.

01.2. Indicate the components/types and coverage of your policy.

Select all that apply

Policy components/types

Coverage by AUM

01.3. Indicate if the investment policy covers any of the following

01.4. Describe your organisation’s investment principles and overall investment strategy, interpretation of fiduciary (or equivalent) duties,and how they consider ESG factors and real economy impact.

In early 2020 the Trustee agreed to replace the Scheme's Responsible Investment Mission statement. This change also resulted in replacing our separate Responsible Investment beliefs with beliefs that are incorporated into the Scheme's wider investment investment beliefs. This reflects that Responsible Investment is central to our approach and fully integrated into the day-to-day management and decision making process, rather than being a separate consideration. 

The new core investment belief states: 

"The Scheme’s investments should be managed to create sustainable long-term wealth, supporting the generation of optimal investment returns to ensure the Scheme can pay all benefits in full.

This means that the Scheme’s investments are selected and managed, through ESG integration and stewardship, to have the characteristics necessary to create wealth sustainably over the long term."

01.5. Provide a brief description of the key elements, any variations or exceptions to your investment policy that covers your responsible investment approach. [Optional]

Our approach and belief, outlined above, has implications for governance, investment strategy, portfolio implementation and reporting. There are 3 key elements that apply to our approach:

1. Long-term horizon: the Scheme's long term horizon gives us both a responsibility and an advantage which we believe will produce better investment outcomes.

2. ESG integration: integrating financially material environmental, social and particularly governance (ESG) factors into asset, manager and security selection processes will help the Scheme and its agents make more informed investment decisions.

3. Stewardship: exercising ownership rights, collaborative engagement with its agents and portfolio companies, as well as active management of physical assets can improve long-term risk-adjusted returns.

01.6. Additional information [Optional].


SG 01 CC. Climate risk

01.6 CC. Indicate whether your organisation has identified transition and physical climate-related risks and opportunities and factored this into the investment strategies and products, within the organisation’s investment time horizon.

Describe the identified transition and physical climate-related risks and opportunities and how they have been factored into the investment strategies/products.

Climate change has been identified as one of 4 critical long-term risks and opportunities that may have a material adverse impact or give rise to significant opportunities for the Scheme. As part of our analysis of climate risks we include all aspects, including transition risks and physical risks, as well as issues such as climate change data and disclosure risks which could result in less informed decision making.

Historically we viewed climate related risks as a less imminent, longer term risk. However, recently climate change has resulted in clear valuation implications, including permanent loss of value (flooding, wildfires, rising sea levels) for assets highlighting it as an influencing factor across all time-horizons. This has led to the decision to establish a top-down Scheme-wide goal on climate change.

Our strategy to address climate change is part of the Scheme’s broader responsible investment strategy which integrates ESG factors across 3 key phases of our approach: (i.) investment strategy, (ii.) manager selection, monitoring and mandate design, and (iii.) active stewardship and engagement. As with managing anything, having the ability to measure is vital. Across the 3 phases of our approach measuring the impact of climate change is important: whether that’s scenario analysis of different temperature outcomes on our assets as part of investment strategy, the carbon footprint of manager mandates or how engagement is effecting change in company emissions.

In the short to medium term our work and analysis suggests transition risks are more significant to our portfolio. As we move out longer term, physical risks become more impactful. In the case of the latter, the range of potential outcomes is very wide, albeit for certain asset classes and sectors the long-term return impacts are less disperse. This is important for a mature Scheme like BTPS that is increasingly seeking to reduce the range of portfolio outcomes to meet our objectives. In general climate change (transition and physical risks) exposure needs to be carefully monitored and managed for us to achieve our funding, fiduciary and sustainability goals. 

There are numerous examples of how we have factored in climate change to our investment decision making, for example:

Investment strategy – to date we have not invested in insurance linked strategies, in part because we didn’t feel the risks of climate change were adequately reflected in underwriting activity. A more positive example would be the adoption of climate targets for our UK real estate portfolio across a range of factors including emissions, waste & recycling and heating, to ensure properties are resilient to climate risks.
Manager mandates – In 2019 we exited a value orientated equity strategy, in part because we didn’t feel the strategy adequately either exploited climate opportunities or mitigated the risks. We reallocated into two actively managed equity mandates where the managers clearly incorporate climate change factors (and wider ESG considerations) into their bottom-up analysis, and company engagements.
Stewardship – a focus of stewardship activity and emphasis has been on climate related issues. Examples detailed in other sections of this submission.

01.7 CC. Indicate whether the organisation has assessed the likelihood and impact of these climate risks?

Describe the associated timescales linked to these risks and opportunities.

This risks and opportunities are considered relevant to the Scheme over all time horizons, short (twelve months), medium (one to ten years) and long-term (beyond ten years). Transition risks are likely to be most relevant over short and medium-term horizons. Physical risks are relevant for all time horizons, although their impact is expected to increase over time as climate conditions become increasingly volatile.

01.8 CC. Indicate whether the organisation publicly supports the TCFD?

01.9 CC. Indicate whether there is an organisation-wide strategy in place to identify and manage material climate-related risks and opportunities.


The Scheme has a climate and carbon risk management process, which 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 updated for 2019, and in parallel is developing narrative-driven climate change scenarios to help us 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.

Manage risk and opportunity
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+.

1.10 CC. Indicate the documents and/or communications the organisation uses to publish TCFD disclosures.

SG 02. Publicly available RI policy or guidance documents


02.1. Indicate which of your investment policy documents (if any) are publicly available. Provide a URL and an attachment of the document.

02.2. Indicate if any of your investment policy components are publicly available. Provide URL and an attachment of the document.

02.3. Additional information [Optional].

The Trustee of the Scheme has approved setting a Paris aligned emissions objective for BTPS. We are in the process of finalising the timeframe for achieving a net zero objective and the interim goals required to meet the target. We plan to announce the net zero target over the coming months, ahead of the Glasgow COP 26 Conference. 

The Scheme's annual report and accounts comply with the TCFD feporting standards. 


SG 03. Conflicts of interest

03.1. Indicate if your organisation has a policy on managing potential conflicts of interest in the investment process.

03.2. Describe your policy on managing potential conflicts of interest in the investment process.

A conflicts of interest policy is in place to assist Trustee Directors in identifying, managing and monitoring any conflicts of interest which may arise in relation to the Scheme. The policy takes account of the guidance from The Pensions Regulator, the Scheme Rules, Articles of Association and the Companies Act 2006. On appointment, each Trustee Director completes a declaration of his or her conflicts of interest and these are recorded in a conflicts of interest register which is reviewed and approved at least annually by the Trustee Board. Conflicts of interest are a standing item at all Trustee meetings.

BT Pension Scheme Management Limited (BTPSM), the Executive, also conducts its business according to the principle that it must manage conflicts of interests fairly and effectively both between itself and its Client – the BTPS, and between the Scheme and other parties it deals with. It aims to act professionally and independently at all times with the Scheme’s best interests in mind, and takes all reasonable steps to: (i) identify circumstances that may give rise to conflicts of interest entailing a material risk of damage to the Scheme’s interests (ii) establish appropriate mechanisms and systems to monitor and manage those conflicts.

03.3. Additional information. [Optional]

SG 04. Identifying incidents occurring within portfolios (Private)