The pensions of 15 million UK workers have been switched to investments targeting net zero, new research reveals.
Before 2021, just three providers – Nest, Standard Life and The People’s Pension – had targets to reach net zero carbon emissions by 2050 for their workplace pension default funds.
A new study by Corporate Adviser Intelligence shows that last year all other mainstream workplace pension providers – 18 in total – adopted 2050 or earlier targets, making net zero investment strategies universal for default pension funds.
Excluding ‘dirty’ industries
The report found that almost all providers exclude controversial weapons from their workplace pension default fund.
Three quarters exclude UN Global Compact violators, and the majority exclude thermal tar and coal sands investments. Eleven out of 21 providers now exclude tobacco, up from just nine a year ago. New provider Cushon is the only provider currently offsetting the emissions generated by the investments in its default plan.
John Greenwood, Head of Research at Corporate Adviser Intelligence, said: “2021 was the year net zero investing went mainstream in workplace schemes, with all commercial pension providers now committed to decarbonising their portfolios by 2050.”
Pension schemes are now required by law to take ESG (environmental, social and governance) factors into account when investing members’ money.
However, Mr Greenwood said that while ESG investing and net zero targets have become the norm for commercial defined contribution (DC) workplace pensions, many defined benefit schemes and single-employer DC schemes still do not have net zero targets.
He said: “Most of our pension funds still hold lots of assets in carbon-based companies, such as oil companies, but change is coming. The great majority of providers are committing to a 50 per cent reduction in carbon investments by 2030, which isn’t that far away.”
What about returns?
He also addressed any concerns that the switch to net zero strategies might mean investment returns being sacrificed in the name of reducing carbon.
He said: “It’s worth remembering that workplace pension schemes still have a legal obligation to prioritise maximising returns on behalf of their members. Given the radical switch by schemes to net zero strategies, they clearly believe an ESG approach puts them ahead of the curve in terms of investing in the economy of the future.”
