UK pension scheme NEST puts out tender for ‘plausible’ climate scenarios

£19bn pension scheme also seeks ‘portfolio alignment tools’

UK occupational pension scheme NEST, which manages £19bn (€22bn) on behalf of savers, is tendering for a set of “plausible” climate scenarios to help it gauge its exposure to climate risks.

In a tender put out late last week, the pension fund said it is looking for climate change scenario analysis which “describe a diverse set of plausible future states, generally based on a specific global temperature rise”.

These scenarios, NEST said, will be used to “assess potential climate-related risks and uncertainties and test the resiliency of various asset classes under different conditions”.

In its response to the UK’s Department of Work and Pensions’ (DWP) consultation last year on climate risk governance and reporting by schemes, NEST said that free scenario analysis tools such as the 2° Investing Initiative’s PACTA one are not sufficient given the objectives of the UK Government’s proposed regulations. 

In an update earlier this year, NEST reiterated to the DWP that any guidance around scenario analysis for schemes “should ideally include a 1.5C, 2C and BAU [Business as usual] (4C+) [scenario] and to consider the impacts of an orderly or a disorderly transition”. 

As part of its new tender, NEST is also looking for proposals for “portfolio alignment tools and climate change metrics”.

The contract, which is expected to start in October and expire in July 2022, is worth £25k. The closing date for bids is 20 September. 

Last year, NEST announced that it would pump £5.5bn (€6bn) – its entire global exposure to development market equities – into the UBS Life Climate Aware World Equity fund, as part of an overhaul of its strategy to include a sweeping new climate change policy

The fund published its latest quarterly report last month and revealed that it had supported the climate proposals at Shell, BP and Equinor, which called on the European oil majors to set emissions reduction targets, including Scopes 1,2 &3, that are aligned with the goals of the Paris climate agreement. 

NEST also revealed that its ethical growth option had the second largest five-year cumulative performance figures of 77%, behind the Sharia fund option’s 131%. The default option was 60%. 

In other UK pension fund news, the Church Commissioners, which manages £9bn (€10.5bn) on behalf of the Church of England, announced last week that it is in the process of developing a Net Zero carbon strategy for its land investments – which make up around 15% of the fund’s investments.

The strategy builds on recent work the fund has undertaken with unnamed consultants to “identify the carbon emissions, sequestration and natural capital profile of its rural, strategic land and timber investment portfolios”, the Commissioners said.