Morten Nilsson | Interview
It is about the impact climate change will have on the building. That helps assess how risky your portfolio is. In the case of Kings Cross it is about modern buildings, and using better building materials and a central heating source for the estate.
The falling pound has had a beneficial effect on the growth-oriented side of your investment portfolio. Do you foresee this continuing and are you planning to capi- talise on it with, for example, currency overlay strategies? We have locked in a lot of gains as we have gone through this. Also, we need to buy a lot of pounds to pay our pensioners and now we can do that cheaply.
There could of course be a big turnaround if Brexit goes well and the pound suddenly appreciates.
nities. The philosophy behind that is that we have relatively few managers where we have deep relationships and we spend a lot of time designing the mandates. We need to make sure that what they do suits us and that they deliver.
If the market is going down, it is easier to get out of certain industries if you have an active mandate. You can have a view on that and act on that view.
BTPS has recently been named as one of the key pension funds promoting the Prin- ciples for Responsible Investment (PRI) in the UK. How are you incorporating ESG and SRI criteria into your investments? One thing we should be proud of is that we
Because of the size of
Brexit will have a massive impact on the UK pensions industry. It has massively divided views, but every pen- sion fund has been encouraged by the regulator to do Brexit scenario plan- ning. The weird thing is that in the current world Brexit is one of many big global risks, such as trade wars.
brought down. Within our public equity portfolio, our carbon exposure is 40% low- er than the MSCI World index. That is something we are pleased about. We are looking at carbon exposure not only on listed equities but also bonds and real es- tate, so we are constantly expanding how we monitor ESG risks.
Where we are weakest is measuring how all our investments are offsetting carbon emissions. We are looking at the negative effects of our investments and not so much at the positive. Having a portfolio that produces less car- bon than the benchmark is positive but including the carbon offsets and thinking more about that will be even better
the scheme, the usual off the shelves options do not quite work.
Because you are European do you tend to have a more global perspective? In Demark, where I am from, we have been Eurosceptic, but that has changed with Eurosceptics becoming a lot quieter recently. But the UK is a big country and one that the Danes share a lot of views with.
Why are more than half of your listed equity exposure invested in factor-weighed strategies? Factor-weighted investment has worked pretty well for us but we have been reduc- ing our exposure so it now accounts for 34% of our portfolio. We have moved into more active strategies where we are focus- sing on exploiting opportunities coming out of this uncertain market scenario and to be quite agile in getting out of invest- ments where there aren’t so many opportu-
have done nothing to promote ourselves as responsible investors other than doing what we think is right. We were one of the founding signatories of the PRI and now that it is integrated into our broader strate- gies we are focussed on making sure we think about the impact.
It is such a hot topic, everyone is shouting about it, but we haven’t been. One thing I like here is that responsible investing is about more than just words, there's some real substance behind it. At BTPS it is integrated in all our processes, we are considering what the ESG impact is with every investment. We see it as a way to protect our invest- ments and we are engaging with the com- panies we are invested with. We are, for example, invested in Fallago Rig, a wind- farm in Scotland that offsets quite a bit of carbon emissions and it has been deliver- ing good returns.
Those four themes we talked about earlier are a way of thinking about our portfolio, making sure our carbon exposure is being
As an investor, the assets that you are managing are signifi- cant, so if you engage as a shareholder that could pull a lot of weight. Have you been doing this? We engage through Hermes which allows us to pool our engagement and have an even bigger impact. We do monitor the results of our engagement and take necessary steps if nothing improves.
Climate change is currently high on the agenda but when did you start considering it as a key investment challenge? That was something I was impressed with when I came here. Climate risk was first considered by the trustees in 2007. That is also why we do so well compared to the benchmark, but we are always looking where we can do more.
In addition to listed equities, we have recently expanded the carbon intensity reporting to our bonds, infrastructure and real estate portfolios, although the metrics there are not as well developed. It is some- thing where the scheme is a front runner. When I joined, I thought those four key risk themes were an interesting way of run- ning the portfolio. It is a way of looking what factors we can predict with certainty and where we should do more.
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