UK pension providers have been urged to take immediate action on the fossil fuel companies they are invested in, after research from Make My Money Matter (MMMM) found that the average UK pension holder invests £3,096 in fossil fuels.

The analysis estimated that UK pension funds invest over £88bn into the fossil fuel industry, equivalent to 10 times the current value of total investments in listed FTSE 350 stocks predominantly involved in clean energy.

Furthermore, while 70 per cent of the representative funds in the schemes analysed disclosed Shell and 60 per cent disclosed BP among top holdings, there were no renewable energy stocks listed.

The group also found that revealed that none of the major UK pension providers have set red lines on investing in companies that continue to explore and develop new oil and gas, while "only a handful" of schemes publicly voted against leading fossil fuel companies in the 2023 AGM season.

While MMMM acknowledged that fossil fuel investments held by climate conscious investors have been considered a tool by which to exert pressure on individual companies to reduce their emissions, it argued that current approaches have proved too weak and ineffective in the context of a growing climate emergency.

Given this, the group argued that these investments are supporting businesses that have so far shown themselves unwilling, or unable, to adapt their business models, and act with the pace and scale required to tackle the climate emergency.

It also suggested that these investments are inconsistent with pension funds’ public positions on climate change, warning that, beyond the environmental implications and the potential inconsistencies with pension schemes' net-zero commitments, the fossil fuel industry’s short-term focus could bring mid- and longer-term risks for pension funds.

MMMM stated: "By investors supporting businesses which are misaligned with global climate goals, it increases the chances of a disorderly transition, and generates further risks amongst the other assets those investors hold.

"Furthermore, in a rapid net-zero transition, those fossil fuel investments are themselves placed at risk of devaluation, with billions invested in companies whose strategies are threatened by climate litigation, stranded assets, and customer backlash.

"As a result, we believe that ongoing investments in fossil fuel companies by the UK pensions industry – without a serious, time-bound and coordinated escalation in how investors use their stewardship role – represents a ticking time bomb for both our pensions and the planet."

In light of these concerns, MMMM urged UK pension providers to put fossil fuel companies "on notice" that they are expected to rule out new oil and gas expansion, and to set credible 1.5 degree aligned plans.

It also called on pension providers to vote against any company which continues to develop new oil and gas, and which doesn’t have credible 1.5 degree aligned plans.

In addition to this, the group encouraged pension schemes to divest publicly, and within set timeframes, from those fossil fuel companies who fail to respond urgently, including setting clear time limits to their engagement.

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