Pinnock (second left): invest and engage

The Church of England is open to investing its £8.7 billion ($11.8 billion; €10.2 billion) endowment in high-emitting assets if they’re on the path to transition.

“We don’t mind targeting a heavy polluter if they have the good governance systems in place, if they have credible targets in place,” Aaron Pinnock, an impact investment analyst at the Church Commissioners for England, told delegates at PEI Media’s Responsible Investment Forum: Europe in London.

“We don’t want to get rid of assets in our portfolio just to artificially make it look better for the next couple of years. I think that’s part of the [low-carbon transition] journey that a good asset manager or investment manager has to be on.”

The Church of England doesn’t require managers to set formal net-zero targets but needs to see that GPs are addressing climate change as a risk, said Pinnock.

“We have to see evidence of a climate change process or understanding from a risk perspective from all our managers, otherwise we won’t invest with them. If there’s no mention of climate change, we won’t invest.”

The Church of England rates managers during their onboarding process for their ESG performance on a one-to-four scale. This rating is based on an ESG questionnaire and a conversation.

“We have terminated managers, not directly because of a lack of ESG, but it all comes into it – they may not be performing in responsible investment activities.”

Targets vs pathways

“We don’t necessarily want a formal net-zero target,” Pinnock said. “It’s all well and good to have a 2050 target, but it’s those interim targets where it really matters. What we really want to see is action on those decarbonisation pathways and a qualitative understanding or discussion with managers. It’s less about holding them accountable to exact tangible things and more about understanding their approach and making sure they’re on that journey.

“On the best practice side, we want TCFD reporting, risk reporting, training across the entire investment teams around climate change. There are different things you can do, whether it’s with the net-zero asset managers initiative or the science-based targets initiative. There’s a lot of stuff – LED lighting, electric vehicles – that we expect our managers to be implementing in their portfolio companies.”

Carbon risk management

Simon Hallett, a partner at Cambridge Associates, joining Pinnock on the panel, objected to Pinnock characterising divestment of high-polluting assets. “I slightly disparage the ‘Making your portfolio look pretty’. That’s part of carbon risk management, and that’s not bad thing.”

Divesting from some assets can “get your portfolio way ahead of plan in terms of carbon footprint” and “give you a budget” to invest in high-emitting assets and transition them to carbon reduction.

“That’s a trend that we’re seeing: the creation of climate impact carveout pieces within a portfolio, either as a growth technology side or as a technology side in terms of renewable power. Everybody is doing that.”

Asking too much?

Martin Ewald, lead portfolio manager for impact investments at Allianz Global Investors, described another trend: “When we talk to investors, they ask a lot about impact. I think sometimes they ask too much about impact and not enough about the financial side of things.”