British pension funds remain dedicated to achieving a net-zero carbon emissions target
In a significant shift towards sustainable finance, UK pension funds are increasingly integrating climate and biodiversity considerations into their investment strategies, according to a new report, "Climate Innovation - Investing in the Net-Zero Economy," released by Pensions for Purpose and commissioned by SAIL Investments.
The report highlights several key trends and findings in climate and nature investments by UK pension funds. One of the most notable trends is the commitment to climate-focused investments, with 40% of UK pension schemes now having dedicated climate allocations, and 60% considering climate risk a core fiduciary responsibility.
Bruna Bauer, research manager at Pensions for Purpose, stated that political volatility is not expected to stall progress on climate strategies in the UK. She added that asset owners are embedding climate and nature considerations across entire portfolios, not just specific asset buckets.
Another significant trend is the move towards a whole-portfolio approach, with many pension funds integrating climate and nature considerations across their entire portfolios, rather than isolating these strategies in specific asset buckets.
However, challenges such as inconsistent data and limited investment scale persist in the integration of biodiversity considerations, according to the study. Nature-focused strategies like forest restoration and sustainable timber are gaining traction, but concerns about their credibility, scalability, and impact measurement remain.
The report also finds that climate change consistently tops stewardship priorities, with biodiversity and nature close behind. Schemes are working to integrate these themes into their investment strategies, reporting frameworks, and manager selection processes.
Pension funds are increasingly setting net-zero targets, strengthening their stewardship practices, and refining their engagement strategies. This focus is no longer about merely complying with environmental, social, and governance (ESG) standards but about achieving measurable results in climate and nature investments.
Michael Schlup, chief sustainability officer at SAIL Investments, stated that to reach net zero, we must go beyond mitigation and tap into investable opportunities that are still largely untapped. In listed equities, engagement and stewardship have overtaken divestment as the preferred tools for driving decarbonisation.
The report also notes that the infrastructure needed to support the energy transition, especially in sectors like transport, utilities, and heavy industry, still faces significant underfunding.
The increase in allocation to emerging markets is mainly driven by the availability of climate-related opportunities such as renewable energy, sustainable supply chains, and nature-based solutions. 87% of UK pension schemes are allocating or planning to allocate capital to emerging markets.
Smaller UK pension schemes sometimes face resource challenges that make it harder to move as fast as they'd like, according to Bauer. However, she also mentioned that over the past few years, more pension funds have set net-zero targets, strengthened their stewardship practices, and refined their engagement strategies.
The focus is no longer on box-ticking for pension funds, according to Bauer. Instead, they are focusing on achieving tangible results in climate and nature investments, aligning with broader ESG investment themes such as climate adaptation and resilience, and nature and biodiversity conservation.
[1] Climate Innovation - Investing in the Net-Zero Economy, Pensions for Purpose and SAIL Investments, 2021. [2] "Climate Change and the Financial System," Bank of England, 2020. [3] "Nature for Climate: Science, Practice and Policy," Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), 2019.
- Pension funds are integrating biodiversity considerations into their investment strategies, following the energy transition trend, as highlighted in a report called "Climate Innovation - Investing in the Net-Zero Economy," released by Pensions for Purpose and commissioned by SAIL Investments.
- The study notes that while nature-focused strategies like forest restoration and sustainable timber are gaining traction, issues such as inconsistent data and limited investment scale persist in the integration of biodiversity considerations.
- In the report, Michael Schlup, chief sustainability officer at SAIL Investments, emphasizes the need to go beyond mitigation and tap into investable opportunities for net-zero targets, including the infrastructure needed for the energy transition in sectors like transport, utilities, and heavy industry.
- UK pension funds are increasingly focusing on achieving tangible results in climate and nature investments, aligning with broader environmental, social, and governance (ESG) investment themes such as climate adaptation and resilience, and nature and biodiversity conservation.
- To reach net zero, a high degree of development finance, venture capital, science, and investing in emerging markets will be essential, given that 87% of UK pension schemes are allocating or planning to allocate capital to emerging markets, mainly driven by the availability of climate-related opportunities.
