Majority of large pension schemes 'failing to act' on climate change

Around £2trn of pension scheme money is not aligned with the Paris Climate Agreement, with 71 out of 100 major UK pension schemes yet to make robust net-zero emissions commitments, according to research from Make My Money Matter (MMMM).

The report showed that despite progress over the past 12 months, which has seen an estimated £800bn worth of UK pension money now in schemes working to tackle the climate crisis, many large schemes are yet to take action.

The research revealed a "stark" contrast in the action being taken by defined benefit (DB) and defined contribution (DC) pensions, stating that whilst the majority of DB schemes are “lagging behind”, "almost all" of the leading 15 DC providers have made credible emissions reduction pledges.

However, Pensions and Lifetime Savings Association (PLSA) director of policy and advocacy, Nigel Peaple noted that whilst the report compares large DB with large DC schemes "in a binary way", "they are very different, so this comparison is often misleading", suggesting that for many schemes, particularly mature DB schemes, a net-zero commitment would be "of limited practical benefit to the environment".

"This is because the vast majority of their assets are in UK government bonds, which in relative terms should already have the right 'green' credentials, and in any case the assets are likely to be transferred to an insurance buyout provider long before 2050," he explained.

"Most DC schemes are much newer, and are expected to grow over the decades ahead. They invest in equities, and have much longer time horizons than most DB schemes, so the impact of a net-zero commitment from DC schemes has the potential to be far greater.”

The findings prompted renewed calls for action from the campaign group, with pension schemes urged to commit to net zero ahead of COP26, and to begin "urgent, front-loaded delivery against targets to drive action", avoid greenwashing and ensure real world impact.

In addition to this, the campaign group has urged the UK government to make net zero mandatory for pension schemes, warning that voluntary action may not see a rapid enough change.

MMMM co-founder, Richard Curtis, commented: “Over the past year, we’ve seen how powerful our pensions can be in tackling the climate crisis.

"But this report highlights just how far we have to go. With almost three-quarters of leading pensions schemes not yet aligned with the goals of the Paris Agreement, we have to act with urgency to make sure that the trillions in our pensions help tackle the climate crisis, not fuel the fire. We need pensions to be proud of.

“Our report shows that voluntary action alone is not enough and that’s why we want the UK government to make net zero mandatory for all schemes at COP26.

"That way, we can be confident that all pensions, while looking after our money, also work towards protecting our planet. After all, what’s the point in collecting a pension in a world on fire?”

Commenting on the report, Peaple welcomed the acknowledgement of the "substantial progress" made by large pension schemes, emphasising that the pension sector is "united in its desire to tackle climate change".

He said: “The legal requirements in the UK are world-leading, with the government being the first to apply the internationally mandated TCFD requirements to pension schemes.

"The pensions sector wants the government to accelerate its climate roadmap to ensure companies, asset managers and service providers catch-up with the expectations on pension schemes. Doing so will ensure that schemes have more accurate and meaningful data on which to base their strategies and commitments.

“Making a pledge to a net-zero target is a step that many schemes have taken and we expect many more will do so, especially once further work is undertaken across the sector to embed the frameworks the industry has developed and published in the last few months.

"This is a complex area and schemes want to be sure their commitments are meaningful and not merely “green washing”.

"While net zero is a clearly defined target, the route to achieving it for the UK and other countries, is still far from clear. We hope that COP26 will be a catalyst to address this gap. It is also important to recognise that trustees’ fiduciary duty is to look after their members money in a way that is appropriate for the circumstances of the scheme they are in."

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