17th February 2022
ESPF has partnered with sustainable investment manager Osmosis Investment Management to launch a £200m global equity ex-fossil fuels portfolio. This mandate forms part of East Sussex’s ongoing commitment to address the investment challenges presented to their passive holdings by the energy transition.
East Sussex Pension Fund’s consultant Isio has supported the development of an investment strategy aligned with the Fund’s objectives, working creatively to develop an innovative approach to implement a revised equity strategy that aligns to the Fund’s Climate Response. The equity strategy will be advised by Osmosis Investment Management with UBS Asset Management acting as Investment Manager, under the current Passive Service Agreement, as set out by the National LGPS Frameworks Team.
The East Sussex Pension Fund (the Fund) is part of the ACCESS Local Government Pension Scheme (LGPS) Pool. The Fund exists to provide pension benefits on behalf of 130 employers and 78,000 members.
Over the past two years, the Fund has made significant progress in addressing climate change risk. A holistic portfolio approach to overall climate risks has been undertaken, underpinned by a set of ESG beliefs and a robust Statement of Responsible Investment Principles. The decarbonisation challenge extends well beyond Fossil Fuel companies, with portfolio action across all sectors and geographical regions, considering both cause and effect of climate change risk. The Fund has identified and sought to remove structural and unconscious exposure to climate risks, restructuring its equity positions by removing traditional passive investments and investing in climate opportunities.
Councillor Gerard Fox, Chair of East Sussex Pension Committee, said
“We are excited to be the first LGPS Fund investing in this product, and it is a great addition to a number of changes already in place as part of the Fund’s climate response implemented as a result of its Statement of Responsible Investment Principles. While keeping fees low for our members by retaining passive equities, and with the exposure to Carbon, Water and Waste all being reduced, we feel this investment meets a number of key objectives for the Fund.”
The Osmosis Resource Efficient Ex-Fossil Fuels Strategy addresses the supply side of fossil fuels through divestment but also, uniquely, the demand side through the targeting of Resource Efficient companies across the rest of the economy. This dual approach seeks to protect investors from potential value destruction as regulatory and financial pressures on the fossil fuel industry intensify, while also limiting the economic impact of potential energy price reflation in a post-Covid recovery.
Osmosis uses a quantitative screening process to remove companies that generate more than 5% of revenue from nuclear energy, any company associated with nuclear weapons, controversial weapons, civilian firearms, tobacco, thermal coal, oil sands and businesses that are not compliant with the United Nations Global Compact principles. Companies in the utilities sector that evidence transition to sustainable business models, i.e., generate more than 50% of energy from renewable sources, are eligible for re-introduction if they also have a positive resource efficiency score. This allows investors to divest from fossil fuels while still capturing the value added by transitioning companies within a passive mandate.
The East Sussex Pension Fund strategy will be managed by UBS Asset Management and seek to replicate the Osmosis Core Equity Ex-Fossil Fuels Fund, which was seeded in January last year by the IMAS Foundation. This brings total AUM in Osmosis’s Ex-Fossil Fuels Strategy to ~ $560m. At the end of December 2021, the Fund had delivered a carbon intensity reduction of 63%, a reduction in water consumption of 67% and a reduction in waste generation of 61% relative to the MSCI World Index. Both Osmosis and the East Sussex Pension Fund are united in the belief that the planet’s long-term sustainability requires a thorough evaluation of total resource consumption, including water consumption and waste generation as well as carbon emissions.
Ben Dear, CEO at Osmosis Investment Management, said:
“The East Sussex Pension Fund is increasingly recognised for its environmental leadership, and we are delighted they have chosen Osmosis’ Ex-Fossil Fuels Strategy to further strengthen their climate ambitions. It is crucial when seeking to remove exposure to fossil fuels, that additional mitigation is undertaken to deal with demand as well as supply. Our Core Equity Ex-Fossil Fuels strategy achieves this while also reducing the portfolio’s exposure to water and waste.”
Malcolm Gordon, Head of UK Institutional at UBS Asset Management, said:
“We are delighted to further deepen our partnership with East Sussex Pension Fund and it has been a pleasure to work with Osmosis to deliver a solution that assists the Fund in combining their investment goals with their ambitious ESG objectives.”
Notes to the editors
About the East Sussex Pension Fund
The East Sussex Pension Fund is part of the national Local Government Pension Scheme (LGPS). The Fund is administered by the County Council and provides retirement benefits for East Sussex County Council employees, employees of Brighton & Hove City Council, the five borough and district councils, academies, universities, colleges, public authorities and staff transferred to admitted bodies. There are currently around 130 employers within the Fund and almost 78,000 members.
Osmosis launched in 2009 and is majority-owned by management and employees. The company currently manages over $3bn in sustainable assets and is headquartered in London with a growing presence in Europe, North America, and Australia. The company believes that targeting better risk-adjusted returns and delivering significant environmental impacts do not need to be mutually exclusive endeavours. Through their unique Model of Resource Efficiency, the company has demonstrated that sustainability metrics, if quantifiable and objective in nature, can be applied to mainstream portfolios to generate alpha.
The Osmosis team of quantitative environmental analysts and portfolio managers is singularly focused on delivering three levels of impact. Better risk-adjusted returns, measurable environmental reductions and an active engagement programme to promote better corporate environmental disclosure.
Osmosis investors include; Government Pension Funds, State Pension Funds, Insurance Companies, Foundations, Endowments, Family Offices and Banks, spanning the UK, North and South America, Mainland Europe, Nordics and Australia.
Isio is a leading UK pensions advisory firm that combines actuarial expertise, third party administration, investment consulting and defined contribution specialism to deliver better outcomes for pension scheme sponsors, trustees and members. Isio, formerly KPMG’s UK pensions practice and backed by Exponent, was launched in March 2020 to apply our years of experience with a new approach and way of thinking. Isio aims to deliver clearer, simpler pensions and investment advice in a more personal way, backed by technical expertise and underpinned by proprietary technology.
About UBS Asset Management
Asset Management is a large-scale asset manager with a presence in 23 markets. It offers investment capabilities and investment styles across all major traditional and alternative asset classes to institutions, wholesale intermediaries and wealth management clients around the world. It is a leading fund house in Europe, the largest mutual fund manager in Switzerland, the second largest fund of hedge funds manager and one of the largest real assets investment managers in the world.
East Sussex Pension Fund [email protected]
Osmosis Investment Management [email protected]
+44 7716 912832