"Careful policy action" is needed to unlock pension capital to help deliver on the government's clear power by 2030 mission, an industry report, Mobilising pension capital for net zero: a policy blueprint for the UK, has suggested.

The report called on the government to take an "active and coordinated approach" across finance, planning, renewable markets and industrial decarbonisation policy to give pension investors greater clarity and confidence, with specific calls to reform public sector net debt (PSND) to include the net worth of illiquid infrastructure investments.

The blueprint is part of a first-time collaboration between Australian and UK pension funds and the UK pensions trade association, Pensions and Lifetime Savings Association (PLSA), which was led by IFM Investors.

Collectively the signatories of the blueprint represent pension schemes that invest a combined £1.7trn (AUD 3.25trn) in the UK and abroad, including the retirement savings of more than thirty million UK workers and more than ten million Australian workers.

In the report, the signatories noted that the UK government has made clean power by 2030 one of its defining priorities and wants to work with private sector investors to double onshore wind, triple solar power and quadruple offshore wind over the next six years.

It also acknowledged that the government is expecting pension funds, both local and globally, to play a major role in financing the wider transition.

However, the signatories emphasised that pension funds have a legal duty to prioritise the interests of pension scheme members, and need the right policy settings in place to facilitate their investment.

Given this, the blueprint encouraged the UK government to reform the fiscal rules for calculating PSND to account for investment in productive assets by the National Wealth Fund (NWF) and Great British Energy (GBE).

According to the report, reforming the fiscal rules to treat unlisted productive assets as an asset would help incentivise long-term public investment in the net-zero transition, creating the conditions for the NWF and GBE to crowd in pension capital at scale.

In addition to this, the report encouraged the government to plan further reform to incorporate its legally-binding emissions reduction targets in the National Planning Policy Framework and enable "rapid" permitting of the repowering of wind farms.

It also recommended that the government fast-track the deployment of renewable energy including through clearly-defined commercial objectives for GBE, as well as longer term contracts for difference to bring down the cost of capital;

In addition to this, it said that government should look to support industrial decarbonisation and emerging net-zero industries by focusing the NWF on supporting the commercial development of higher risk emerging net-zero industries.

It also suggested that the government could aim to improve physical and regulatory integration between the UK and EU energy markets to support "harmonised, tariff-free trading and two-way energy flows".

Commenting on the report, IFM Investors executive director, Gregg McClymont, said: "Mobilising pension fund investment has the potential to create benefits for society, but quite rightly, pension funds have a fiduciary duty and must only invest in their members’ best interests.”

“This world-first collaboration between some of the UK and Australia’s largest funds maps out how the government can accelerate the energy transition and deliver strong returns for working peoples’ retirement savings.”

“There are a number of steps to unlocking this investment. But a pre-requisite is that the government should account for infrastructure assets more like a long-term investor, and less like a commercial bank holding equity as loan collateral to be sold in a fire sale.”

Signatories to the blueprint include the Universities Superannuation Scheme (USS), its largest Local Government Pension Scheme pool, Border to Coast, Nest, as well as Local Government Pension Scheme (LGPS) Central and the North East Scotland Pension Fund.

Alongside this, there were a number of signatories from Australia, including Aware Super, CareSuper, Cbus Super, HESTA, Hostplus and Rest.

The blueprint will be launched in Westminster today (9 October) at a roundtable event featuring the chief investment officers of some of the UK’s biggest pension funds and government representatives.

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