A £40bn UK workplace pension provider has dropped its 1.5°C portfolio target because due to a lack of action globally to tackle climate change.

People’s Pension said instead it will consider investments “on a case-by-case basis” but stresses that it will “continue to have a net zero ambition” aligned to the Paris climate change agreement.

“Global emissions have not moved in a way that is on track to limiting warming to 1.5 degrees, and much of the policy action anticipated five years ago, that the Paris alignment was designed to mitigate the risk of, has not materialised,” said the pension scheme.

“Additionally, the Scheme recognises that the business case for a low carbon transition has been variable across regions and sectors.”

It added that “maintaining portfolio targets that are inconsistent with the real world could significantly increase levels of risk with little real benefit”.

Dan Mikulsjis, chief investment officer of People’s Partnership, which provides the pension scheme, said: “This updated approach demonstrates a robust evidence-based process to support climate action that is grounded in a clear objective: to protect and grow our members’ savings.

“Our industry understanding on how to do this effectively has materially changed since we set our original portfolio-level target in 2019, and we have a fiduciary responsibility to evolve and adapt to those developments.

“Additionally, there is seven years of evidence on market-wide decarbonisation and policy change that we believe needs to be adapted to.

“We believe the retention of a Paris-aligned ambition is important, but it must be rooted in bottom-up realities as to the role that investors can play in achieving it to ensure better outcomes for our members”.

'Overly ambitious climate strategies'

People’s Pension chair Mark Condron added: “We remain firm that climate change is a significant long-term financial risk, but that misaligned, or overly ambitious climate strategies can also harm our members if they rely on optimistic assumptions about the speed or nature of transition.

“Our updated climate approach makes this explicit, and we believe being robustly transparent about this, both to our members and the wider market, is critical.

"By grounding our approach in real world evidence, we can back a credible transition while safeguarding the retirement outcomes our members rely on.”

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