LGPS investment pool trusts Environmental, Social, and Governance Tracker to oversee operational carbon footprint
LGPS Central, a £43bn pension fund pool in the Midlands, has taken a significant step towards achieving carbon neutrality by 2050 with its partnership with carbon reduction firm C2Zero. The collaboration, which plays a strategic role in supporting LGPS Central's commitment to reducing its operational emissions, was highlighted in a recent opening of C2Zero's UK Carbon Cancellation Service (C4S) in London in March 2024.
The UK Emissions Trading Scheme (UK ETS) serves as the backdrop for this partnership. This cap-and-trade system, designed to limit greenhouse gas emissions, sets a limit on the amount of carbon that can be emitted, with firms able to purchase allowances within this cap. LGPS Central, as a financial institution, recognises the importance of managing its carbon footprint within the broader UK carbon regulation frameworks, particularly in relation to operational emissions from buildings, travel, and energy use.
C2Zero's Carbon Cancellation Service offers a solution that aligns with LGPS Central's goals. By purchasing and cancelling UK ETS emission allowances on the market, LGPS Central effectively removes the rights to emit those quantities of greenhouse gases from circulation. This action creates a direct environmental benefit by tightening the cap internally within the trading scheme, preventing the issuance of equivalent emissions elsewhere, and promoting real-world emission reductions.
Moreover, this partnership complements LGPS Central's own emission reduction efforts by offsetting residual operational emissions that are hard to eliminate directly. Through C2Zero’s service, LGPS Central can neutralise emissions that remain after implementing operational efficiencies and renewable energy usage. The initiative also demonstrates accountability and transparency in achieving carbon neutrality goals, as it leverages a verified market-based approach aligned with national carbon regulations.
The price of ETS allowances has fallen over the last year due to a combination of weaker demand and a surplus of carbon allowances in the market. However, this volatility is expected to be less in the ETS market compared to the voluntary carbon market. The price of a single ETS allowance currently trades between £30 and £40.
The initiative received the backing of academic Andreas Hoepner, professor of operational risk, banking and finance at University College Dublin and head of the Data Science Hub. Hoepner, who is also a member of the EU Platform (PSF) on Sustainable Finance, encourages other enterprises to follow LGPS Central's example in addressing operational emissions. The partnership was opened as part of the Connect to Prosper initiative led by the former Lord Mayor of London, Alderman Professor Michael Mainelli.
Patrick O'Hara, head of responsible investment and stewardship at LGPS Central, believes C2Zero's solution provides access to carbon emissions allowances from the UK Emissions Trading Scheme. Each allowance in the UK's Emissions Trading Scheme equates to one tonne of CO2. While the volume of the transaction between LGPS Central and C2Zero is not disclosed, the ability to remove purchased allowances from circulation was also attractive to LGPS Central in partnering with C2Zero.
The UK's Emissions Trading Scheme aims to create a carbon price to drive further decarbonisation. By participating in this scheme, LGPS Central is contributing to the integrity and ambition of the UK ETS, encouraging broader decarbonization efforts in other sectors. As LGPS Central works towards its goal of carbon neutrality by 2050, its partnership with C2Zero serves as a notable example of a financial institution engaging directly with carbon markets to address operational emissions.
In this partnership, LGPS Central, as a financial institution, leverages the UK Emissions Trading Scheme (UK ETS) to manage its carbon footprint. By purchasing and cancelling UK ETS emission allowances, LGPS Central is directly reducing greenhouse gas emissions and promoting real-world emission reductions.
Moreover, this partnership with C2Zero aligns with LGPS Central's goal of carbon neutrality by 2050, not only reducing operational emissions but also offsetting residual emissions through a verified market-based approach.
