Active to passive manager switch creates emissions concerns
Northern Irish local government pension scheme’s recent switch to a passive emerging market equity mandate has caused a spike in its scope 1 and 2 emissions (Sean Kuriyan/Unsplash).
A £10.9bn local government pension scheme in Northern Ireland has dropped its active emerging market equity manager, temporarily placing the proceeds, worth £205.4mn, into a passive EM equity fund managed by Legal & General Investment Management as it looks for another active manager. Yet while the passive fund is performing well, it has been causing issues elsewhere.
The Northern Ireland Local Government Officers’ Superannuation Committee dropped manager William Blair from its roster after hiring the firm in April 2021. The fund’s annual report states that its emerging market equity portfolio was the “worst performing market” in both local and sterling terms at March 31 2024.
The emerging market equity portfolio lagged behind its target, the MSCI Emerging Markets Index +3 per cent, by 6.3 per cent in 2024. At the time, the scheme noted it was “not unduly concerned with short term volatility in investment returns” opting to take an assessment of the mandate over a longer time period. This was short-lived, as time ran out for William Blair the following year.
Now, the remainder of NILGOSC’s emerging market holdings, around £205.4mn, sit in an LGIM EM tracker while the scheme looks to find another active EM manager.
Some may argue that the scheme should keep the capital in the passive fund, as it lessens the risk of extreme deviation from its benchmark. The tracker fund has returned 18.8 per cent from the period of March 31 2025 to September 30 2025.
Yet it must be noted that going down this route will disproportionately skew the fund’s climate objectives as the small passive EM mandate accounts for 70.5 per cent of LGIM-managed scope 1 and 2 emissions. To put this in perspective, NILGOSC’s holding in LGIM’s passive low-carbon global equity mandate, worth £2.4bn, accounts for 29.5 per cent of LGIM-managed scope 1 and 2 emissions.
“Under active management, portfolio managers can consider sectors, investment specifics and ESG credentials of underlying holdings, and therefore emissions output would usually be lower,” the scheme’s climate-related disclosures report reads.
NILGOSC declined to comment.