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LPs call for interim targets in GPs’ net zero pathways

Actions towards net zero targets are a factor in the New Zealand superannuation fund’s policy for withdrawing capital.

Setting ambitious, long-term net zero targets for a year in the distant future is no longer enough for investors, it seems. LPs at last week’s Responsible Investment APAC Investor Day called for interim targets and annual progress reports on how GPs are reducing carbon emissions.

Anne-Maree O’Connor, NZSF

The New Zealand Superannuation Fund’s head of responsible investment, Anne-Maree O’Connor, said: “Committing to net zero is the alignment to a long-term goal. But it’s not just about setting targets. It’s about what actions, management systems or policies the private equity LP is putting in place. I think they can report annually on that. Looking at this in detail is what we do with other environmental and social issues.”

NZSF, which has assets worth NZ$58.18 billion ($41.37 billion; €35.15 billion) evaluates external managers to help decide “whether we maintain, dial up or dial down any manager mandates” by giving a manager weighted scores on several factors, including management of ESG risks, NZSF said in its 2020 annual report. Conviction reviews are conducted before due diligence and at least annually while NZSF is invested in a fund.

Fiona Mann, LGIAsuper

Fiona Mann, a senior investment analyst at LGIAsuper, an Australian superannuation fund with assets worth A$12.9 billion ($9.4 billion; €8 billion), said: “It’s easy to do the reporting requirements, but you want to see the implementation and the action of them. Net zero falls squarely under that umbrella. It’s easy enough to report and make targets, but from a superannuation fund investing in this area, we need to see some tangible targets along the way. I’d rather someone didn’t come out with a net zero target if they didn’t have the tangible targets on the way.”

Ontario Teachers’ Pension Plan Board also recognises the importance of interim targets on the way to net zero. Last week, the C$227.7 billion ($179.7 billion; €153.5 billion) pension announced targets to reduce carbon emissions by 45 percent by 2025 and 67 percent by 2030 across its public and private markets portfolios. Ontario Teachers’ already has a target of net zero carbon emissions by 2050, and will report annually on its progress against these targets.

Ontario Teachers’ is also planning to “significantly grow investments in companies that generate clean energy, reduce demand for fossil fuels and build a sustainable economy”, according to its statement.