UK pensions could invest £1.2 trillion in climate projects

Written by Lori Campbell on 7th Nov 2023

UK pensions could invest up to £1.2 trillion in climate solutions – HALF the amount needed by 2035 to put the UK on target to hit its net-zero goals – with the right reforms, a new report has found.

The British pensions industry currently invests four per cent of its assets in “climate solutions”such as off-shore wind, solar and energy-efficient housing. This puts it on course to invest just £300 billion by 2035, according to research from British life insurer Phoenix Group and campaign group Make My Money Matter.

The report – Unlocking investment in climate solutions – explores the role the pensions industry can play in financing the UK’s path to net zero as well as supporting developing countries in financing their transition.

We’re nowhere near maximising the potential of our pensions for people or for the planet

It says that too few of the existing opportunities, including projects such as wind and solar power and energy-efficient housing, are scalable and offer appealing returns for investors. Regulatory constraints on the UK pension industry are also limiting the financing of climate projects.

Bruno Gardner, head of climate change and nature at Phoenix Group, said: “It’s exciting to see that pension funds could finance up to half of the investment needed to keep the UK’s transition on track and provide savers with greater access to the investment potential of climate solutions. But it’s even more important to have identified why there isn’t already more funding for climate solutions and what can be done about it.”

He said the research will help start “much needed” conversations with government, regulators and the rest of the industry to collectively help pension funds fulfil their potential in the nation’s journey to net zero.

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Seven actions to unlock investment

The report identifies seven actions policymakers and regulators could take to unlock investment, several of which Gardner said could be achieved within 12 months.

It says the government should publish an economy-wide national transition plan and provide better long-term policy certainty and incentives to investors. Regulators, it adds, need to provide pension funds with clarity on considering climate impacts as part of their fiduciary duties. British pension funds have £3.7 trillion in assets but much of this is held in low-risk government bonds.

Richard Curtis, co-founder of Make My Money Matter, said that right now “we’re nowhere near maximising the potential of our pensions for people or for the planet”.

“The UK pension industry can quadruple its investments in climate solutions,” he said, adding that the report “shows how we can mobilise more than £1 trillion – a staggering amount – to help tackle the climate emergency, both at home and abroad”.

Tony Burdon, CEO of Make My Money Matter, said there is strong demand among individual pension savers to invest in ways that lower carbon emissions, especially given that climate change “will undermine pension returns in future”.

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