Brunel Hits Carbon Intensity Target, Varma’s Real Estate to Be Carbon Free by 2030

England’s £30 billion ($38 billion) Brunel Pension Partnership reported that it achieved its target of reducing the carbon intensity in its active portfolios by 7% in 2019. The pension pool has set a goal of reducing the carbon intensity of its portfolios by 7% each year until 2022.

Meanwhile, €43.6 billion ($49.2 billion) Finnish pension fund Varma is joining a global real estate and construction industry initiative that advocates for carbon-neutral buildings. Varma’s goal is to switch to fossil-free energy consumption in the properties it owns by 2030.

Brunel said in its Responsible Investment and Stewardship Outcomes report that all its active portfolios have surpassed the fund’s goal of more than 7% carbon intensity improvements against their benchmarks. It also said its low-carbon index has a carbon intensity of less than half that of the standard index.

“We continue to work extensively on reducing the carbon footprint of our portfolios,” the company said in the report. “In 2019, we worked with one of the appointed managers in the Brunel Active UK Equity Portfolio in order to reduce the carbon intensity of investments.”

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In the report, Brunel showed the weighted average carbon intensity (WACI) of each of its portfolios, as well as the associated disclosure rates for the respective portfolios. The WACI indicates a portfolio’s exposure to carbon intensive companies.

The fund said the Brunel Aggregate Portfolio is less carbon intensive than its custom benchmark, with a relative efficiency of 15.4%, and it has a 9.4% exposure to fossil fuel revenues compared with 12.4% for its benchmark. It also has a lower share from fossil fuels (25%) than its benchmark (30%), and it has outperformed a higher share from renewables with 9% compared with 2% for its benchmark.

The company said it uses carbon footprinting, along with other tools, to provide analysis on the carbon performance of Brunel Portfolios and its appointed managers.

“It is useful in order to determine the carbon performance of holdings,” the report said. “Because carbon intensive companies are more likely to be exposed to potential carbon regulations and carbon pricing, this is a useful indicator of potential exposure to transition risks such as policy intervention and changing consumer behavior.”

Over in Finland, Varma is joining the Net Zero Carbon Buildings Commitment, which is calling on construction, real estate companies, and cities to set the target of having carbon-neutral buildings in operation by 2030. Varma’s real estate investment portfolio, which was valued at approximately €4.6 billion as of the end of March, provides commercial premises to companies and owns approximately 4,000 rental apartments.

According to the commitment’s definition, a net zero carbon building is highly energy efficient and powered from renewable energy sources, with any remaining carbon balance offset annually.

“Varma wants to be a forerunner in reducing the energy consumption of the properties it owns and in calling attention to building-related emissions, which play a significant role in climate change,” Johanna Haikala, Varma’s real estate investment manager, said in a statement. “As a major Finnish real estate investor, we have an obligation to focus efforts on reducing emissions and aiming for carbon neutrality.”

Varma said it is aiming for the electricity and heating in its properties to be fossil free by 2025 and 2030, respectively. Seven of Varma’s properties have been equipped with solar panels, and this year it began installing heat pumps in some of its residential properties with the goal of halving the emissions from its housing stock by 2023.

Varma noted that at the current rate of carbon emissions, the Earth’s temperature will increase by 1.5 degrees Celsius before 2030, and that buildings account for approximately one-third of climate change emissions worldwide.

“Therefore, representatives of the real estate industry have a major opportunity to do their part to mitigate climate change,” said Lauri Tähtinen, development manager of Green Building Council Finland.

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Tags: Brunel Pension Partnership, Johanna Haikala, Lauri Tähtinen, Net Zero Carbon Buildings Commitment, Real Estate, Varma, weighted average carbon intensity

Austin’s City Council Audit & Finance Committee voted unanimously to roll out a plan that would help resolve the balance sheets of the the city’s troubled employees retirement system (COAERS) and the Austin Police Retirement System (APRS).

The pensions’ liabilities were already in relatively bad shape before the pandemic, but today’s situation necessitated legislative “flexibility” to cure it. According to a report presented to the council, the APRS and COAERS funding ratios at the end of 2018 were 58.1% and 67.6%, respectively, with both projected to sour in the near future.

To help, the city established a council legislative working group to guide the legislative process, provide policy direction on pension reforms, and develop the city’s legislative agenda related to any retirement system amendments and plan changes.

“No significant easing of these long-term funding challenges is expected from investment returns alone,” the report said. The council entertained a host of considerations that would help cure the funds, including enacting a flexible contribution policy to manage their risks and liabilities, amending benefit policies to help sustain the fund’s obligations, and risk-sharing between the city and employees. In the sharing program, the city of Austin would pay at least 60% and the police would pay 40%. The two funds together have about $2 billion in unfunded liabilities.

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Moody’s downgraded its AAA credit rating to the city of Austin in 2019 from stable to negative, citing the city’s “inability to manage the growth of liabilities and costs associated with the retiree benefit systems.” Standard & Poor’s maintained a stable outlook, but it said the city’s pattern of raising contribution rates significantly “negatively impacts finances, or material deterioration in the long-term health of the plans could affect the rating.”

The council approved a substantial increase in the city’s contribution rate for COAERS in 2010, raising it from 12% of payroll to 18% of payroll by 2013. APRS’ contribution rate increased from 18% in 2009 to 21% in 2015.

“The COAERS Board of Trustees has been working proactively to address the System’s unfunded liability and shape its long-term sustainability,” COAERS Executive Director Christopher Hanson said. “The City Council’s Audit and Finance Committee embraced the Board’s policy recommendations to enact a more flexible contribution policy to manage the System’s risks and fund the unfunded liability, amend benefit policies to ensure that the System’s obligations are met, and utilize appropriate risk-sharing measures.”

The report also noted APRS “has an infinite amortization period; in other words, the current funding levels are actuarially projected to remain insufficient to adequately fund the benefits. As stated in the plan’s valuation: ‘The APRS’s funded ratio is expected to continue to decrease until it reaches zero when the assets of the system are depleted.’”