Environmental, Social and Governance (ESG)
The Trustee believes that Sustainability and Environmental, Social and Governance (ESG) factors are important when investing the Fund's assets, and should be integrated into the investment process.
The Trustee
The Trustee is a signatory to the UN Principles of Responsible Investing (UNPRI). This is a globally supported sustainability framework and provides a structure through which signatories can assess and develop the integration of ESG criteria into their decision making practices.
"Return and sustainability are not conflicting objectives, and the main objective of the Fund is to deliver superior investment returns. Sustainability is a part of this, not some standalone objective."
Regular sustainability and ESG monitoring
The Trustee regularly monitors its investment managers' practices in relation to sustainability and ESG. This includes:
- Receiving a Sustainable Investment Report from its investment consultant covering the Fund's public equity managers. This rates the managers in 3 categories:
- Integration of Environmental, Social and Governance (ESG) factors
- Proxy vote decision making and execution process
- The process for pro-active corporate engagement
- Monitoring the carbon exposure of the underlying portfolios of the Fund's listed equity and bond managers
- Monitoring the ESG rating of the underlying portfolios of the Fund's listed equity and bond managers using ESG ratings from a third party provider
- Including sustainability and ESG factors in discussions with both current and potential investment managers when they present to the Trustee
Publications and reports
The latest Environmental, Social and Governance reports can be found in in the document section below. Past Reports can be found in the News & Publications Section of the website.
Latest report findings
The last Sustainable Investment Report received by the Trustee identified one equity manager with weaknesses in ESG integration and voting. This was because the manager adopted a mechanistic approach to investing, with a high level of stock turnover. Of the other managers covered, none had any areas rated as a weakness and all but one had at least one area of strength. Two of the managers were rated as strong in all three of the categories listed above.
The Trustee regularly engages with their investment managers to debate and challenge on ESG issues. It is not the Trustee's role to discuss specific investments but to set a framework for the investment manager to operate within.
In addition to this, the Fund also invests in some portfolios specifically targeting a sustainable investment theme, such as renewable energy and water and sewerage infrastructure.
The Sustainable Investment Report will be prepared every year and will then be reviewed by the Trustee.
In October 2023 the Trustees published their first Net Zero Carbon Journey Update which shows that the Fund is on track to deliver the 2030 target and is in fact ahead of where it needs to be to deliver the 2030 target.
The update aims to provide you with an insight into the progress made to date and supplements the annual report on sustainable investing.
Thermal Coal Exclusions
As highlighted in the Fund's Statement of Investment Principles, the Trustees took the decision to exclude companies that generate more than 30% of their annual revenues from thermal coal in power generation and/or mineral extraction from its segregated portfolio. At the start of each quarter, the Fund publishes an exclusion list on its website showing publicly listed companies that fall into this category. This list is then used by the Fund's segregated equity and bond mandate managers to implement the exclusions. The latest list can be found in the documents below.
For private markets, no investment is permitted in coal in the Fund's portfolio of direct and co-investments, except where a company is making or has explicitly committed to make a transition towards a non-coal future.
Task Force on Climate Related Disclosures (TCFD)
The TfL Pension Fund ("the Fund") is subject to the requirement to produce disclosures in line with the recommendations of the Task Force on Climate Related Disclosures ("TCFD"), as transposed into UK law in 2021. The aim is to improve and increase reporting of climate-related financial risks and opportunities.
The TCFD framework requires disclosures in four broad categories:
- Governance around climate-related risks and opportunities
- Strategy: the actual and potential impact of climate-related risks and opportunities on the strategy and financial plans of the Fund
- Risk management: how the Fund identifies, assesses, and manages climate-related risks
- Metrics and targets: the metrics and targets used to assess and manage climate-related risks and opportunities
This report sets out the Fund's approach to compliance in each of these four categories and can be found in the documents section below.