If you go down to the woods today, you’re in for a big surprise… over the past 50 years, we’ve lost 50% of the world’s forests. It’s a problem with far-reaching consequences. 

Forests cover almost a third of the land on our planet and are essential to life. They help the environment by purifying water and soaking up carbon dioxide. They provide homes for three quarters of our land-based wildlife. And they keep people employed, with around 50 million jobs in or related to the forest sector.1  

If we want to protect these critical ecosystems and all the habitats, livelihoods and biodiversity they support, we need to act. That doesn’t mean everyone should pick up a shovel and plant a tree – the smart way to do it is collectively, which is why our master trust pension is the ideal vehicle for change.

Why pensions play a role in building a healthy world

People adopt a great variety of sustainable living habits these days, from recycling their cereal boxes to driving an electric car, but for most people, the biggest impact they can have is through their pension. 

Left unchecked, the average UK pension pot finances around 13 tons of CO2 emissions every year. However, through the simple act of switching to a more sustainable/responsible/climate-focused pension (they come in all flavours), people can significantly reduce this figure. 

At an individual level, this is great news for a person’s carbon footprint. Collectively, through economies of scale, the combined funds of millions of sustainable savers can really move the dial on climate change and deforestation.  

Cushon Master Trust is a pension fund with purpose

When it comes to deforestation, we want to be part of the solution. We want to invest in companies that take this seriously and make a difference. And we want to make people feel proud of what their pension can do. So that’s exactly what we’re doing. 

 “We recognise that a sustainable environment relies on adequate forestation, and that ultimately sound deforestation policies contribute to our members having a healthy world to retire into. We believe that we should both minimize our deforestation impact and seek productive reforestation opportunities.”

Marc Barnett, Head of Investment at Cushon

Introducing our 3-stage journey to deforestation

We see there being three essential elements to an effective deforestation journey, all of which we work on in tandem. Here’s an overview:   

1. Measurement: We investigate our impact on and exposure to deforestation risks

We partner with NatureAlpha, biodiversity data experts, to monitor the proportion of investee companies that have a deforestation policy. As a benchmark, we compare our custom climate-aware equity index against the global equity index (MSCI All World). For a summary of our findings, see appendix A1. 

While it’s a good start, there are limitations to this approach. We believe the deforestation data and scores that are available worldwide are still quite poor quality, so we expect to develop our measurements as more established reporting methods become available. 

2. Reduce exposure: We adjust our investments to reduce our impact and exposure

We will partner with Exter University and biodiversity data providers to really dig into and reduce our deforestation exposure. Then, we’ll both reallocate assets and engage with companies to promote positive change. We’re also having early discussions about developing biodiversity metrics into our index design.

Currently, stage two is where our capabilities are most limited. We are aiming to include biodiversity risk tilts in our index by 2025, which should be a big step forward. 

3. Positive impact: Target a positive impact through reforestation and afforestation

Now for the really interesting stage, full of potential for both diversified investment returns and employee engagement, not to mention environmental impact. This is where we switch focus from reducing the negatives to increasing the positives.

15% of our portfolio is allocated to private markets via the Schroders Climate+ fund, which itself has a 10–25% allocation to natural capital, including soil, water and forests.

We’re also looking to develop large sites in the UK and Europe where there is significant potential for conservation through afforestation or peatland restoration. The carbon credits generated by these sites will be a great source of highly sustainable investment returns.  

Together with employers and their employees, acting collectively through their Cushon workplace pensions, we will make a difference to deforestation. Here’s to better outcomes for the environment and better outcomes for pension savers. 

Watch this space for updates and further insights about the Cushon Master Trust Sustainable Investment Strategy.

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Appendix: 

A1: Proportion of Investee Companies with Deforestation Policy 

A2: Understand our Emission Sources 

We have also started to break down our portfolio to better understand the sources of carbon emissions in our portfolio. The table below displays the sector-level, scope-specific carbon emissions within the Macquarie True Index fund, as of the end of Q3, 2023. The below figures result from an 85% coverage in our chosen emission data providers across the portfolio. 

The results are as you would expect, with the Energy and Utilities sector being the worst offenders. We are already 90% underweight in Oil and Gas companies, and are reviewing the option of removing the final 10%, as we strive for a UN Sustainable Development Goals-aligned portfolio, and to contribute to real world transition towards Net Zero.  

AFOLU 

We also wanted break the emission data down to companies who are related to agriculture, forestry and other land use (AFOLU) industries. This is typically a high emitting area of practice, with the AFOLU sector alone contributing to 17% of global emissions in 2018. We found 12 companies within our portfolio who we believed qualify as an AFOLU-related company, accounting for 0.18% of our exposure: 

Emission Intensity: 

AFOLU-related companies make up 0.18% of our equity index, but contribute to over 1% of our overall portfolio’s scope 1, 2 and 3 emissions. We are comfortable with this statistic, since all AFOLU-related companies have undergone and passed a screening process that removed environmentally irresponsible companies. Consequently, our equity portfolio already has 60% lower emissions (42 tCO2/$m) than the 2021 benchmark (122 tCO2/$m). 

It is important to monitor AFOLU related companies within our portfolio, since the need for the world to decarbonise is becoming ever greater. These companies will be continually reviewed, and we may be forced to divest in any company we deem too environmentally irresponsible. 

Coal 

We identified just two companies within our equity portfolio that are related to coal production. These two companies combine for a 0.011% allocation. Below are their carbon footprints compared to the energy sector average:  

Duke Energy’s transition plans:  

‘Duke Energy Corp. intends to close the rest of its coal plants by 2035 and more than double its renewable capacity by 2030 as part of a massive — and expensive — clean energy push.’ 

Endesa’s transition plans:  

‘Endesa confirms that it will totally abandon coal in Spain by 2027, with the end of operations in Alcudia, which is currently being maintained for reasons of security of supply, and following the closure of its largest coal-fired power plant (As Pontes) this year. The company reconfirms that it will be fully decarbonised by 2040, when it will have fully abandoned the gas business. The aim of all this is to comply with the Paris Agreement goal of 1.5ºC of temperature increase compared to the pre-industrial era.’ 

Again, both companies have undergone and passed a screening process that removed environmentally irresponsible companies, since both have strong decarbonisation aims and have a UN SDG score of better than –5.1.