UK pensions could invest £1.2 trillion in climate projects with policy help – Report – November 7, 2023 at 10:00 am

A report on Tuesday showed that the UK pensions sector could invest up to £1.2 trillion ($1.5 trillion), half the capital needed by 2035 to move the UK towards its net-zero targets, if the projects were more attractive and would be less… Regulatory barriers.

The UK pensions sector currently invests 4% of its assets in “climate solutions” and is on track to invest just £300bn by 2035, according to research by UK life insurer Phoenix Group and campaign group Make My Money Matter.

According to the report, very few of the options, which Phoenix says include projects such as wind, solar and energy-efficient homes, are scalable and offer attractive returns.

Legal restrictions on the UK pensions sector also limit the financing of illiquid investments in the long term, the report said.

“We have these big ambitions, like our peers, to invest in climate solutions and we have some real challenges,” Bruno Gardner, head of climate change and nature at Phoenix, told Reuters.

“One of the fundamental reasons is that even if there are opportunities in the works, they are not investable…in a way that produces strong returns,” he said.

The report identifies seven actions policymakers and regulators can take to unlock investment, many of which Gardner says can be achieved within 12 months.

The report said the government should publish an economy-wide national transition plan and provide investors with greater certainty and incentives for long-term policies, including by improving the planning and permitting system prioritizing climate-friendly infrastructure.

Regulators must provide clarity to pension funds on considering climate impacts as part of their fiduciary duties.

UK pension funds have £3.7 trillion in assets, but most of them are held in low-risk government bonds. The government revealed plans to encourage funds to invest more in infrastructure and startups to boost economic growth.

Tony Burdon, chief executive of Make My Money Matter, said there was strong demand among individual pension savers to invest in ways that reduce carbon emissions, especially as climate change “will undermine pension returns in the future”.

However, he said the UK’s smaller pension schemes – Britain alone has more than 5,000 defined benefit schemes – and their trustees do not have the expertise to assess climate-related risks and invest accordingly. He added that the lack of regulatory guidance “is leading to extreme caution” among funds.

Pension funds around the world see opportunities in the transition to a low-carbon economy. California’s top public pension system said Friday it will double its climate-focused investments to $100 billion by 2030. ($1 = 0.8075 pounds)