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Net Zero: What can investors do?

November 4, 2022

Howard Williams is part of the Board of Trustees for LifeSight (WTW’s master trust), the first master trust to embed ESG into its default investment strategies. They have also committed to targeting net zero greenhouse gas emissions across all its default funds by 2050, with a 50% reduction by 2030. Monique Mathys-Graaff discusses with Howard why this is important to the Board of Trustees, how they have approached net zero and what other investors can do on their own journeys.
Climate Risk and Resilience|ESG In Sight
Net Zero: What can investors do?

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Net Zero: What can investors do?


SPEAKER 1: Welcome to WTW's ESG In Sight Spotlight Series.


MONIQUE MATHYS-GRAAFF: Welcome to our net-zero in-action session where we are exploring with investors and asset owners what actions to take to stay on track with our net-zero commitments.

We have in this session a practical example from an asset owner. We welcome Howard Williams from LifeSight, a leading UK master trust. Howard, thank you so much for joining us today. Please share with us a little bit more about LifeSight.

HOWARD WILLIAMS: Sure, Monique. LifeSight was the first master trust authorized in the UK by the Pensions Regulator in 2019. And over the last 3 and 1/2 years, it has grown to be responsible for assets of over 11 billion pounds on behalf of nearly 250,000 members, and representing 40 seeding corporate employers.

The governance structure consists of a trustee board of five independent trustees. WTW provide consulting advice to those trustees, as well as fiduciary management services in relation to our default strategies. WTW also provide a full suite of administration services to our investors and our members.

LGIM, Legal and General Investment Management, are one of our important underlying investment managers and provide our investment platform. And the trustees have also appointed EOS Federated Hermes as an additional layer of stewardship advice for the trustees. So that's a quick snapshot of LifeSight today.

MONIQUE MATHYS-GRAAFF: That's excellent. Thank you. And please share with us why has LifeSight approached the net-zero in the way that you have.

HOWARD WILLIAMS: Sure. Well, last year, the trustees announced LifeSight's commitment to net-zero greenhouse gas emissions by 2050 with an interim target of a 50% fall in those greenhouse gas emissions by 2030.

And we've done this for a number of reasons. Firstly, the trustees recognize that climate change and the need for a just and orderly transition represents a significant global challenge. And as trustees, we recognize that this challenge represents a potential risk to the financial being of our members. And that's absolutely key.

And I think as trustees, we have a duty of care to ensure that we're thinking about climate change and all its implications on behalf of our members just as we do with any other financial or non-financial risk.

And of course, as a leading master trust in the UK, we have a duty to engage in this debate. I don't think it's right that we can just ignore it. We shouldn't just ignore this debate. As a leading investor, we have an opportunity on behalf of our members to engage in this conversation and hopefully to shape it.

And finally, I would say that when we survey our membership, when we engage with our members, it's absolutely clear that our members want their pension assets to be aligned with this objective of a move to net-zero. It's a very clear message that we get from our membership today.

MONIQUE MATHYS-GRAAFF: You've given us a great description of the why. Could you explain about the how, your approach in ensuring that LifeSight achieves its net-zero goals?

HOWARD WILLIAMS: Sure. And I think the trustees recognize that this is a complex issue, and often an emotive issue with a widely held range of legitimately held views.

But nonetheless, the trustees have resolved to do a number of things. Firstly, we've resolved to push all our advisors to make sure they're at the forefront of this debate, and that the trustees get high-quality good information.

Secondly, we've also resolved to structure all our key default investment strategies. So they're fully aligned and our members assets are fully aligned with our net-zero target. And we've introduced a limited number of self-select strategies that our members can choose that aligned with the net-zero target and other sustainability goals.

And finally, and perhaps most importantly, we've introduced a carbon journey plan, which sets out the trustee's expectations of what we expect to see along this journey. But also enables us to measure progress along the way and enables us to hold our managers to account. So those are the key things that we've done in terms of implementation.

MONIQUE MATHYS-GRAAFF: Howard, you've given such a great description about your approach. I have clients that have come to us and cried out. We feel like we are struggling with death by climate metrics. You've been through your fourth iteration of TCFD report. How have you managed to distil that detail?

HOWARD WILLIAMS: Well, I can certainly sympathize with people. The whole stewardship and governance area seems to be having somewhat of a Cambrian explosion of climate metrics, three and four letter acronyms, all sorts of jargon. And I think that is really confusing, particularly for our members for non-financial professionals.

However, two of the guiding principles for the trustees are that we're at all times member-focused, but also that we're straight-talking. And by that, we mean we use our members language to cut through complexity and to cut through jargon, and to explain some of these more difficult issues in our members language. And that's certainly a challenge for the trustees.

MONIQUE MATHYS-GRAAFF: Certainly there are significant complexities of changing portfolios, changing demands that climate change brings to us amidst the varying needs of your members as you've expressed.

But we also have the broader sustainability ESG factors to consider as we manage portfolio performance over time. It would be great for you to share how you've approached that as well, please.

HOWARD WILLIAMS: As long-term investors, and recall, we are investing over 20, 30, 40-year horizons, it's important that we're guided by the financial interests of our members over the long-term because our mission is to generate the best possible pension outcomes for our members. And ESG sustainability will form an important part of this thinking over the next 20 and 30, 40 years.

So what we've done in practice, very similar to what we've done in terms of our net-zero target, is introduce a balanced scorecard that looks at a variety of sustainability measures.

So the scorecard looks at things like, for example, control exposures to controversial weapons, exposure to coal, exposure to tar sands, and exposure to companies that are violating United Nations Global Compact principles, which, as you know, are very widely cast.

So I think having a balanced scorecard enables us to hold our managers to account and enables us to look at the journey through time and to measure progress, which, I think, is absolutely key for us as trustees. It's an important part of our overall governance structure.

MONIQUE MATHYS-GRAAFF: And Howard, as we conclude, thinking across your 40 years of experience as an investor in the industry, how has this landscape changed for you?

HOWARD WILLIAMS: Well, when I started in this industry 40 years ago, essentially, everyone just looked at trying to measure risk and trying to measure return. But now I don't think that's sufficient.

We now have to look-- of course, risk and return is important to our members, but our members increasingly want us to look at impact as well. And that represents a fundamental change for the industry and a tremendous challenge for us as trustees to rise to.

MONIQUE MATHYS-GRAAFF: Howard, thank you for sharing your experiences with us as a trustee of LifeSight. Certainly, the 40-year journey that you've been on has been an encouragement to many to ensure that as we tackle net-zero together, we can all stay on track.

Please, do join us for other sessions on net-zero in-action where we try to share with you the specifics of how you too can stay on progress and achieve your net-zero targets.


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