Cushon Master Trust announces target to reduce the carbon footprint
The Cushon Master Trust has today announced its target for the growth phase of its main default strategy to achieve a total 80% reduction in scope 1 and 2 carbon emissions by 30th September 2030, compared to its independently verified 2022 benchmark [¹]
This target coincides with Cushon Master Trust’s decision to end its use of carbon offsets for future clients and prioritise its mission to fully decarbonise its main default investment strategy, the Cushon Sustainable Investment Strategy, at pace [²]. In so doing, it will demonstrate that a pension fund can rapidly transition towards net zero without compromising the diversity of its investments or outcomes for members.
The decision to stop using offsets is based on the Cushon Sustainable Investment Strategy already achieving significant reductions in emissions since its launch in 2022.
Within the growth phase, the default fund has already achieved a 44% reduction in scope 1 and scope 2 emissions compared to its previous default fund as reported in its TCFD, far ahead of its initial target of 20%. And against its 2022 benchmark, it has achieved a 64% reduction in scope 1 and 2 emissions.
These reductions in carbon emissions are enabled by the fintech's investment strategy that includes one of the largest allocations in the Master Trust sector to private markets – which targets investments in windfarms, solar, green hydrogen and natural capital such as reforestation and afforestation – alongside impactful investing across all investments held (equities, bonds and private markets).
Today's announcement is the latest step in Cushon's sustainability agenda, but comes with a warning that while on track to meet its target of cutting its carbon footprint by 80% by September 2030, the remaining 20% of emissions are not in the Master Trusts’ control; this is a systemic issue – not unique to Cushon – where all businesses, no matter their climate ambitions, operate within a fossil-fuel reliant economy.
This requires unambiguous policy intervention from government and industry collaboration to end that reliance. Without this, the pension industry’s 2050 net zero goals are at risk.
The Cushon Master Trust highlights the vital role campaigning groups and stakeholders who act as a force for good – such as Make My Money Matter – will play in driving the industry to meet its net zero goals by building consumer understanding and demand and holding providers to account.
Cushon's decarbonisation plans are an encouraging step as the fintech continues to pursue more ambitious emissions reduction targets. Beyond their work internally, we call for greater innovation and cross-industry collaboration. The industry as a whole needs to come together to raise ambition - and increase the pace of action - to drive real-world, long term emissions reductions. It's what the world needs, and what pension holders across the UK now demand.
Tony Burdon, CEO of Make My Money Matter
This is another milestone in our mission to build a pensions landscape that not only provides better outcomes in retirement but also acts as a force for good in the world. With our transition plan in place to reduce emissions at pace, we’re proud to help lead the charge in the pensions industry towards Net Zero. However, individual providers can only do so much – at some stage the industry, government and other stakeholders will have to collaborate to remove the final portion of emissions. We need to start this conversation now if the industry as a whole is going to meet 2050 net zero targets.
Roger Mattingly, Chair of the Cushon Master Trust
In setting an emission reduction target of 80% by 2030, we are again attempting to demonstrate what is possible. Our target is supported by a transition plan, which demonstrates asset class by asset class, mandate by mandate, how we will achieve these reductions. We believe Cushon's transition plan demonstrates these reductions can be achieved without an unacceptable loss of diversification, and still leave room to support high emitting businesses in transition.
Cushon's Strategic Adviser, Julius Pursaill
References
[¹] The benchmark, which has been verified by independent advisers ISIO, is defined as the weighted average of the carbon footprint of the underlying funds’ benchmark of 118 tCO2e/$m EVIC
[²]Existing members of Cushon's Net Zero Now proposition which launched in 2021 will see no change to their scheme, with financed emissions continuing to be offset. The “Net Zero Now” offering has reached capacity and will no longer accept new members. The emissions reductions to date and through to 2030 apply to all members who are in the default fund of the Cushon Sustainable Investment Strategy. This includes Net Zero Now members and future Cushon pension members.
Cautionary Notes
Setting targets
Where Cushon Master Trust (CMT) has set decarbonisation targets, these targets are based on CMT’s own assessment, judgments, estimates and assumptions and rely on third-party information that is both quantitative and qualitative, as well as public and private.
CMT's targets and net zero ambitions recognise that certain definitions and requirements are likely to evolve over the coming years. In this event, CMT may revise such targets and ambitions.
CMT's investment in funds managed by third parties means that any targets set on a CMT level are highly dependent on selected fund managers delivering on their own targets and making all relevant information available.
The reduction in the carbon intensity of the Cushon Sustainable Investment Strategy is achieved through a reduction in the carbon intensity of the underlying investments. This in turn depends on the availability of suitable investment opportunities that have lower carbon intensities while providing the desired investment characteristics (such as risk, return, liquidity, etc.). CMT’s ability to source suitable investments will depend to a large extent on many factors and uncertainties beyond CMT’s and the wider asset management industry’s control. These include the macroeconomic environment, the extent and pace of climate change, including the timing and manifestation of physical and transition risks, the effectiveness of actions of governments, legislators, regulators, businesses, investors, consumers and other stakeholders to adapt and/or mitigate the impact of climate related risks, changes in consumer behaviour and demand, , changes in the available technology for mitigation and adaptation, the availability of accurate, verifiable, reliable, consistent and comparable data. We expect product availability to differ across asset classes, sectors, geographies and thematic opportunities, and these assumptions have been built into our targets. Where product availability does not meet our expectations or does not satisfy our investment requirements (e.g. size, liquidity, etc.) this can hinder the ability for CMT to achieve any such targets...
CMT analysis currently suggests that these decarbonisation targets can be met without an unacceptable loss of diversification, expected returns, liquidity etc. It is ultimately the role of the CMT trustees to determine an appropriate balance between climate risk mitigation via decarbonisation and other investment characteristics.
Third party funds and other external factors
The Cushon Sustainable Investment Strategy invests in funds managed by third parties. This raises the following particular risks:
The third-party fund manager is responsible for the selection of underlying assets (such as equities, corporate fixed income and sovereign bonds), and therefore the determination of the ESG related characteristics of the overall fund (for example, the carbon intensity of the fund is determined by the underlying assets held within the fund) and thus CMT is reliant on the decisions taken by the third-party fund manager;
The availability of fund-level ESG related data relies on fund managers disclosing their fund holdings to data providers. This data might lag, causing our ESG reporting to reflect data that is potentially no longer accurate (for example, the carbon intensity of a portfolio might have changed due to a change in underlying fund holdings that is not yet reflected in the data used by third-party data providers);
We rely on third-party fund managers to accurately disclose their holdings, and on data providers to accurately aggregate equity and fixed income data up to the fund level. Any errors in this can impact CMT's own reporting to clients.
Article by
NatWest Cushon
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