Interview: Faith Ward MBE on net-zero narratives, transition finance and safe spaces for mistakes

At a difficult time for Brunel Pension Partnership and its staff, this weekend brought some welcome good news. Faith Ward, the chief responsible investment officer at the £35.9bn (€42bn) local authority pension asset pool, was made a Member of the British Empire (MBE) for “services to pensions and the environment” as part of the King’s Birthday Honours this year.

Over a career spanning more than 25 years, first at the Environment Agency and then at Brunel, which the Environment Agency helped form, she has pushed the investment industry to raise its standards in responsible investment, particularly vis-à-vis climate change.

“A titan of everything that is responsible investment,” is how her peer Adam Matthews, chief responsible investment officer at the Church of England Pensions Board, put it in a note on social media in response to the news last month that the UK government had effectively told Brunel (and another pool, ACCESS), to disband.

Ward’s MBE lands at a difficult time for sustainable finance. Long gone are the heady days of net-zero investment commitment announcements rolling in one after another. Instead, there is pushback against sustainability, most notably in the US but to some degree also in the EU, and commitments are being weakened.

Ward is adamant that any suggestion that the net-zero mission should be abandoned is “wrong-headed at many levels” and says that Brunel and other responsible investors need to regain the narrative on critical risks and issues. However, this doesn’t mean upping the volume, but changing tack, at least somewhat.

“I think one of the big lessons from the responsible investment climate agenda is that we have to be an awful lot better at explaining what we’re doing and how it connects to people’s day-to-day lives,” she tells IPE in an interview just days before the King’s honours announcement.

“We haven’t always brought everybody along with us.”

She also believes that some of the current backlash “could be quite healthy because it gives us an opportunity to reset expectations of what finance can achieve”.

“We feared as early as COP 26 in 2021 that policymakers were not sufficiently aligned with the plans and progress private finance was making.

“Institutional investors can innovate, but realistically, we cannot lead without policymakers.”

Brunel has achieved significant reductions in both carbon (60%) and fossil fuel intensity (93%) in its listed markets portfolios since setting its baseline in 2019. But, while this contributes to reducing exposure to sources of climate risk for its partner pension funds, it says it “does not change climate reality”.

Transition finance

To help shift the dial, Ward is pouring personal time and energy into her involvement in the UK government’s newly-launched Transition Finance Council, where she is a member of the strategic steering committee and chair of its scaling transition finance working group.

“Transition finance is just so important and hopefully it will carry weight that, as a progressive climate voice, I am saying it’s not only legitimate but essential to invest in hard-to-abate sectors,” she says.

‘Hard-to-abate’ is industry jargon for industrial sectors with a particularly high greenhouse gas footprint, such as cement, steel and heavy-duty transportation. For some, it is a term that smacks of excuses for inaction, which is the opposite of Ward’s intention.

“It’s not greenwashing, it’s not moving away from climate ambition, it’s central to it,” she says. “If industrial manufacturing, aviation or shipping don’t change, then we’re not going to transition the whole economy.”

“It’s not only legitimate but essential to invest in hard-to-abate sectors”

Faith Ward, chief responsible investment officer at Brunel Pension Partnership

She acknowledges that transitioning the highest emitting industrial sectors might involve small steps that “may not feel quite as progressive as what some people’s appetite would be”, but says there needs to be “more headspace for more pragmatic narrative explanations” from investors about what they are trying to achieve as well as “a safer space to make mistakes on this journey”.

Another area that Ward is pouring extra time and energy into these days is climate adaptation and physical resilience, with physical climate risk not yet receiving the time and attention it deserves.

“There’s just so far to go,” she says, noting that existing tools tend to frame physical climate risk quite narrowly in terms of asset impairment at a company level, without taking into account more indirect impacts from effects on the communities in which companies are embedded.

“It is a very difficult risk to quantify, but we need to have a better recognition of the fact that the risk will be manyfold what is being calculated,” she says.

“That’s what causes quite a lot of the tension around some of the mainstream quantitative climate scenarios in the industry, because we know they’re underpricing the risk.”

Asset managers

Ward has always been demanding of asset managers, although also recognising that asset owners have an important role in ensuring that interests are aligned. Asked about comments from the PRI CEO that asset managers are crying out for more leadership from asset owners, she says this demand, given the current environment where managers are experiencing counter pressures, makes sense.

“But a part of me also thinks it has to move both ways,” she adds. “Asset owners are still resource constrained, so the more asset managers can do to facilitate and to build their own analytical capabilities to evidence what they’re doing and monitor progress, the better.

“There’s work to do on both sides of the relationship, and I think you’re starting to see some shifts.”

In terms of the question of what US asset manager exits from climate alliances will mean for asset owners’ manager selection, Ward says it was disappointing, but Brunel is being pragmatic.

“At the end of the day, we want to employ really good asset managers and we have always worked in partnership with asset managers to ensure they deliver on our requirements.”

“We have always worked in partnership with asset managers to ensure they deliver on our requirements”

She gives the example of Brunel’s work with its multi-asset credit portfolio, which was launched in 2021 and is split across three mandates managed by CQS, Neuberger Berman, and Oaktree.

In a recent report, Brunel explains that it is heavily reliant on these managers to fulfil the asset pool’s stewardship ambitions, but that all three are currently meeting a Brunel-wide target to engage with 70% of financed emissions and are on track for 90% of financed emissions in material sectors to be either aligned, aligning or subject to direct or collective engagement and stewardship actions by June 2027.

“In the multi-asset credit space, we started with quite a low base because not much work had been done in the industry and we wanted a multi-asset credit portfolio with a net zero framework around it,” says Ward. “We worked with the asset managers, two or three of which are US-based, and it’s gone great guns.

“It’s about that partnership with asset managers and working out together how we can navigate these tricky times, because the science hasn’t changed – we still need to manage climate risk.”

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