The UK pensions and insurance sector could meet up to 50 per cent of the investment needed to deliver on the UK's net-zero commitments, but only if the current policy, regulatory and market barriers are overcome, Phoenix Group has said.

The group's report, Unlocking Investment to Support the Net-Zero Transition, suggested that meeting net-zero targets will depend on "significant" large-scale capital investment in clean energy projects, sustainable infrastructure, and emerging technologies.

Indeed, the Climate Change Committee estimates that £26bn of investment will be required between 2025 and 2050, while the annual investment needed over the next five years to achieve the Clean Power 2030 target, a key milestone in the UK's net zero journey, is even higher at around £38bn - the majority (65-90 per cent) of which is expected to be delivered by the private sector.

Phoenix Group suggested that the UK pensions and insurance sectors, which collectively manage £3.1trn in assets, could contribute up to 50 per cent of the required investment.

It also suggested that the sector's long-term, patient capital should be well-suited to financing the sustained investment needed in renewable energy and large-scale infrastructure.

However, previous Phoenix Group analysis showed that, based on current run rates, the sector is currently on track to invest closer to 15 per cent of the overall investment needed, in spite of ambitions to do more.

Phoenix Group explained that this is due to a range of policy, regulatory and market barriers, which are limiting companies' ability to invest in ways that deliver customer value and align with fiduciary duty.

But the group argued that the National Wealth Fund (NWF) could play a "crucial role" in unlocking investment in the net-zero transition from the pensions and insurance sectors if some changes are made to its current approach.

In particular, Phoenix Group argued that the NWF should redesign its guarantees to include make-whole provisions and offer periodic payments so that insurers can use the guarantee products the NWF offers to better align with insurers’ regulatory requirements.

The group also called on the National Infrastructure and Service Transformation Authority (NISTA) to work with the NWF and GB Energy to develop the UK’s infrastructure pipeline, arguing that pension funds and insurers would benefit from greater clarity on the pipeline of investable assets available through the NWF and GB Energy.

The group also argued that sectoral investment roadmaps are needed to provide investor certainty, suggesting that the Department for Energy Security and Net Zero and HMT should lead cross-government development of this.

In addition to this, the report suggested that more could be done to address the regulatory and structural barriers to unlock institutional investor capital by encouraging greater consolidation in UK pensions and evolving the regulatory framework.

Phoenix Group also encouraged the government to consider ways to incentivise domestic investment, such as targeted tax incentives for pension funds that allocate a significant portion of assets to UK infrastructure.

Commenting on the report, Phoenix Group head of climate change and nature, Bruno Gardner, said: “The long-term savings industry is ideally suited to support the UK’s transition to net zero and greater energy resilience and to build more sustainable infrastructure.

"The long-term nature of our investments mean that our industry could contribute up to 50 per cent of the investment required.

"However, there are still barriers that need to be overcome to unlock that potential. This paper sets out a number of non-fiscal reforms to do just that.

"If these reforms are implemented, Phoenix Group would be able to put more of our £290bn of assets to work, backing green infrastructure, supporting the energy transition, and delivering better outcomes for both our customers and the UK economy.”

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