Climate, natural capital and inequality are three key themes that pose a material risk on client funding outcomes according to Brightwell, which manages around £37 billion of assets on behalf of the United Kingdom’s BT Pension Scheme, BTPS, as well as assets of the DB arm of the EE Pension Scheme.
BTPS rebranded as Brightwell a year ago, pitching to manage other pension funds’ assets alongside its own portfolio on the basis that working together and sharing operational resources has profound benefits. It says it offers pension funds a coherent, single approach to pension management that allows schemes to replace their cohort of actuarial, investment, fiduciary and covenant advisors, plus multiple asset managers, with a single operation.
It’s inaugural sustainability report details how it will invest in climate opportunities like new technologies and companies successfully mitigating the risk of climate change. But avoid investments in companies at risk of stranded asset, new regulation or high costs due to carbon pricing or extreme weather events disrupting supply chains.
“We help clients understand how climate change could affect their pension scheme and provide solutions to better insulate them from its effects,” states the report. “We encourage setting net zero goals where appropriate and review the impact of sustainability on investments on an ongoing basis, and measure the impact at least annually.”
Prioritising natural capital
A second investment theme will address natural capital. Biodiversity loss, ecosystem degradation and the associated value at risk are now key considerations in Brightwell’s investment process. Freshwater provision, sustainable agricultural, regional conflicts, and migration due to resource shortages are likely to be exacerbated by biodiversity loss and ecosystems degradation.
“The consequences will be felt in supply chains, the availability of resources and growth of most sectors around the world,” warns the report.
Brightwell also highlights the link between natural resources and businesses through their supply chains in a “notoriously complex” web. It warned that the impact from the loss of natural resources will likely to be felt gradually over a longer period of time, rather than a one-off, short, dramatic event.
The asset manager will also seek to address inequality via its investment process. Human rights, modern slavery, as well as diversity, equity and inclusion and the use of artificial intelligence are all now integrated into investment decision making.
“We believe systemic inequality has the potential to destabilise the financial and social systems within which our clients invest and benefit from. Increased inequality is likely to lead to reduced economic growth through greater financial and social instability, and reduced output. Having an awareness of inequality and addressing inequalities such as developing DE&I practices is an ethical and business imperative to have a licence to operate.”
Social mobility is a key theme in the asset manager’s own internal DE&I strategy. The company has developed Brightwell Pensions Academy to recruit people of any age and background, with little or no pensions knowledge, to join a year-long structured training programme.
Policy in action
Brightwell has developed a pillar framework covering portfolio construction, mandates and managers, stewardship, advocacy and sustainability. Expertise BTPS benefited from in a number of ways last year.
For example, Brightwell has supported BTPS gather net zero data and improve climate reporting, including investment in new tools to improve collation and consistency of manager reporting on sustainability. It has helped the pension fund develop a new sustainability dashboard to improve portfolio and manager monitoring.
It has also represented the pension fund on the ASCOR project, an important initiative to improve sovereign climate reporting, and the Asset Owner Diversity Charter which promotes diversity, equity and inclusion in the investment industry.
Brightwell’s first sustainability report identifies the “critical enablers” that will support sustainability including people, processes and partnerships. The report also highlights the company’s commitment to positive real-world impact.
“What we do has a real-world impact, and we can positively influence the way business is conducted to reduce negative externalities. Our scale and governance mean we can be bold, nimble and take a leading position in areas where we feel we can make a difference.”
