Now Pensions improves sustainability metrics with new investment strategy

Now Pensions’ new investment strategy has enabled it to accelerate climate action on its default fund. 

This new strategy was implemented in the first quarter of this year, and moves away from the derivates-based risk parity approach to direct holdings in equities, bonds and other assets.  

Now Pensions says this has been done to improve investment performance while also enabling it to enhance its approach to sustainable investment. The master trust has previously lagged towards the bottom on the performance details in Corporate Adviser’s CAPA league tables.  It says this switch to direct equity holdings will enable it to make more of a real-world impact on climate, while progressing towards its own 2050 net zero goal. 

As a result of these changes Now Pension says that 76 per cent of the holdings in its diversified growth fund are now directly linked to the trustee’s responsible investment objectives. 

Overall its says, around 60 per cent of this fund is invested in an equity strategy that seeks to support the transition. The fund has around 11 per cent invested in sustainable and green bonds, and a further 4 per cent in a corporate credit strategy that seeks to supports the transition.

Within this equity strategy Now Pensions says around 43 per cent of the companies it invest via its equity portfolio have net zero targets that are have been approved by the Science Based Targets initiative (SBTi). This represents around 30 per cent of it total portfolio.

As part of the change in investment strategy, the global equity investments are now managed directly by the scheme’s in-house investment manager, Cardano Risk Management. It says this allows the company to have direct engagement and influence on these holdings, particularly in regard to their net zero trajectories. 

Now Pensions says it has continued to reduce the carbon emissions intensity of its portfolio in-line with its 2050 net zero pathway. The carbon footprint is 52 tons of greenhouse gas per million pounds (tCO2e/£) invested for scope 1 and 2 in 2024, down from 63.1 tCO2e/£ in 2023.

For scope 3 emissions, 390.8 tons were recorded, down from 524.3 tCO2e in 2023.

Now Pensions director of investment Martyn James says: “Earlier this year we took the decision to implement a new investment strategy to our portfolio. This was set, not only with the ambition of improving performance and value for money for our members, but to also comprehensively improve our sustainable approach to investment. This new approach is strongly linked to our conviction and the principles of our trustees, to deliver a scheme that puts sustainability at the heart of its investment approach.

“We are proud of the progress that we have made in this last year, with the number of our investments backed by a recognised Science-Based Target increasing, while the carbon emissions per million invested has significantly decreased. These developments put us well on our way to achieving our objectives of a 50% reduction in carbon emissions by 2030, based on 2019 levels.”

Now Pensions head of sustainability Keith Guthrie adds: “The change to an equity strategy managed directly by our in-house investment manager allows improved stewardship, helping to deliver improved financial outcomes and contribute to a more sustainable economy. As our strategy becomes more imbedded, alongside our ability to play a more active role in our stewardship and influence with the companies we invest in, we believe we can move closer to achieving real world decarbonisation as a result of companies reducing their emissions.”

“While we would like to see the world decarbonise even more quickly than the 2050 target, the reality is that global emissions have yet to peak, let alone decrease in-line with the pathway we have set out. As a result, an important part of Now Pensions’ strategy is to remain invested and engage with those high emitters of today whom we believe can develop credible plans to achieve net-zero by 2050.”