Lloyds Banking Group Pensions Trustees Limited
Portfolio level – Portfolio decarbonisation reference target
Baseline date: 31 December 2020
Baseline performance: 62.5tC02e/$mn invested for listed equity and listed corporate bonds (scope 1 and 2)
Target year(s): 2030, 2050
Target(s): -50% tCO2e/$mn invested by 2030
Net zero by 2050 or sooner
GHG scopes included: Scope 1 and 2 emissions for listed equities and listed corporate bonds. Scope 3 emissions to be included in the future when data coverage and quality improves. Note we appreciate this will lead to short term fluctuations against our target.
Asset classes in scope: The target portfolio reference target covers all asset classes. However, currently only measure and report on listed equities and listed corporate bonds. Other asset classes will be reported as data coverage and quality improve.
Net zero scenarios/methodology: Methodology used is consistent with the IIGCC Net Zero Investment Framework. Scenarios used are consistent with global 1.5 degree scenarios in the Intergovernmental Panel on Climate Change (IPCC).
Emissions metrics: In aggregate, AUM is expected to reduce over time, reducing carbon intensity should lead to a reduction in absolute emissions.
Portfolio level – Investment in climate solutions target
Approach: We are committed to increasing investment in climate solutions in line with our fiduciary duties and risk appetite. No quantitative target has been set at this point in time. We expect our allocation to climate solutions to increase as investment opportunities that meet our risk appetite expand.
Asset level – Portfolio coverage target
Baseline date: 31 December 2020
Baseline performance: 42% of assets meeting at least “aligning” criteria
Target year: 2030
Asset classes in scope: The target covers all asset classes. However, the baseline only includes listed equities, listed corporate bonds, sovereign bonds and real estate. Other asset classes will be reported as data coverage and quality improve.
Methodology: Our approach to assessing alignment to Paris is top-down focused at present. It varies by asset classes and is subject to data availability (currently limited to scope 1 and 2 emissions) and practicality of assessing alignment to Paris for that asset class.
For example, for Sovereign Bonds we rely on the Sovereign’s legally binding commitment to the Paris Agreement. For other asset classes, we assess emissions against Paris Aligned Benchmarks and other external data points that could be reasonable and practical for assessing alignment to Paris.
Over time our approach will evolve to focus on a bottom-up assessment of the portfolio where possible to do so as data quality and coverage improves.
Asset level – Engagement threshold target
Approach: Our engagements with companies are through our investment managers, where the majority of them are members of the Climate Action 100+ initiative. We have active engagement with all of our investment managers on the portfolio holdings, including those in material sectors. We also engage with consultants, custodians/administrators, data providers and the wider investment community to achieve net zero by 2050.
Methodology: Our medium and long term carbon emission targets apply to 100% of the assets under management and are consistent with the IPCC 1.5 degree global warming pathway.
Operational emissions: Work in progress. However, given the outsourced nature of the pension schemes, the operational emissions in scope 1 and 2 are expected to be de minimis.
It is worth noting, Lloyds Banking Group plc has committed to net zero operational emissions by 2030.
Fossil fuel investment: In 2021, a number of exclusions and tilts were introduced to help manage the exposure to fossil fuels and sectors deemed to be highly exposed to climate change.
As a baseline, the Trustee excludes companies that generate 10% or more of their revenue from thermal coal where possible and practical to do so.
Furthermore, having worked with strategic partners to analyse the impact of climate change, maturity limits in the listed corporate bond portfolios (c. $12bn) have been introduced on sectors that are deemed to be highly exposed to climate change.
Some of the listed equity (c. $1.9bn) has also implemented climate tilts towards companies more aligned to the Paris Agreement as assessed by the Transition Pathway Initiative. We plan to increase this over time.