HSBC Bank (UK) Pension Scheme
Portfolio level – Portfolio decarbonisation reference target
Baseline: 31 December 2019
Target Year(s): 2030
Target(s): 50% CO2e/$mn invested
- DB: 104tCO2e/£mn invested, 78tCO2e/$mn invested
- DC: 103tCO2e/£mn invested, 78tCO2e/$mn invested
GHG scopes included: Scope 1 and 2
- DB portfolio: Scope 1: 45.9%, Scope 2: 48.6%
- DC portfolio: Scope 1: 85.0%, Scope 2: 84.6%
Scope 3 emissions to be evaluated as part of next annual data gathering exercise.
Asset classes in scope: Listed equity and corporate fixed income. We plan to engage with our real estate managers to discuss including real estate and agree targets in the first half of 2022.
Portfolio level – Investment in climate solutions target
Qualitative goal: HSBC Bank (UK) Pension Scheme has committed to increasing investment in climate solutions, where possible.
Baseline: 31 December 2019
Due to the lower investment risk of the DB portfolio, it is less likely new allocations to climate solutions will be appropriate. The portfolio already contains long-term illiquid allocations to renewable energy infrastructure in the United Kingdom. However, the Trustee will allocate to solutions that are consistent with its long-term investment goals.
The DC portfolio has a much greater allocation to equity, principally through the Legal & General Future World Fund. From Q3 2021, this allocation will already be achieving a 30% emissions intensity reduction relative to the FTSE All World. There will also be a doubling of the green revenue exposure – to 100% greater than the reference benchmark, as well as integration of TPI’s Management Quality and Carbon Performance metrics in the portfolio construction process.
Whenever the Trustee reviews the investment strategies of both the DB and DC portfolios, it will evaluate the potential of investing in climate solutions. The next upcoming review is of the regional equity allocation for the DC portfolio. These will likely be reinvested in more climate-aware versions, with a higher allocation to climate solutions (EU Taxonomy defined).
Given the future de-risking investment strategy of the DB portfolio, we have not set a specific quantitative target for climate solutions yet.
Asset level – Portfolio coverage target
Target year: 2030
Target: 100% of assets expected to meet least “aligning” criteria
Baseline performance: As at 31 December 2019:
- DB: 50% of the corporate fixed income portfolio had an average TPI Management Quality score of 3, meaning climate change-associated risks are being integrated into operational decision-making. No data exists currently for the remaining 50%.
- DC: 76% of the DC portfolio (listed equity and corporate fixed income) had an average TPI Management Quality score of 2.7, meaning capacity is being built to manage climate-related risks. No data exists currently for the remaining 24%.
We recognise this metric only captures governance and decision making at the issuer level. We have begun collecting the percentage of our holdings that have set Science-based targets under the SBTi and we will consider adopting the new TPI IEA-consistent Carbon Performance benchmark when it is released.
Scope of target(s): Listed equity and corporate fixed income
Data sources: Listed equity & corporate fixed income: CA100+, Transition Pathway Initiative (Carbon Performance and Management Quality), SBTi. The alignment metrics referenced are those currently utilised but we will be reviewing what additional metrics we will use going forward to augment existing measurement processes, including those closer to the framework. The HSBC Trustee views this as an evolving area where new metrics may evolve and so is keeping a flexible approach to allow time for the industry to evolve a “widely shared approach” to measuring alignment.
Asset level – Engagement threshold target
Approach: We are currently assessing a more accurate measure of this value. Currently 79% of our listed equity, corporate fixed income and real estate managers are members of the Climate Action 100+ initiative. However, we recognise there are gaps in our largest holdings not being subject to targeted engagement. We are currently in the process of reviewing the operating model through which we exercise our stewardship and engagement responsibilities. When this is complete, we will have a better assessment of the proportion of financed emissions that are aligned or subject to engagement.
Scenario: In line with the findings of the most recent Intergovernmental Panel on Climate Change (IPCC) report.
Additional info: Emissions reduction primarily to be driven by real economy reduction, rather than portfolio construction.
Fair share: Our commitment is to target real economy emissions reductions in line with global requirements identified by the IPCC. Whereas the DB portfolio will continue to run-off, the DC portfolio is expected to grow exponentially in size over the next ten years. This portfolio will be diversified across sectors and geographies and will likely have a lower tracking error to the real economy. Therefore there is not an appropriate solution to reduce the emissions intensity of the portfolio other than targeting absolute emissions in the economy.
Fossil fuel policy: The Future World Fund (over 60% of the DC portfolio, £3.4bn) excludes companies generating 30% or more of revenues from thermal coal mining/extraction. This fund also excludes ten companies from the global benchmark due to the lack of progress made on targeted engagement activities. This list includes a number of companies from the fossil fuels extraction sector.
HSBC Bank (UK) Pension Scheme case studies