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Our research finds that, with the right reforms on the right terms for pension savers, UK pension funds could quadruple their investment in UK climate solutions to up to £1.2 trillion of their UK asset allocation. Such investments would account for half of the gross capital investment in climate solutions that is needed by 2035 for the UK to remain on track with its net zero transition.
We partnered with forward-thinking campaign organisation Make My Money Matter to determine what system-wide actions could be taken to boost investment in climate solutions. Our mission was to dig deep into the barriers that could be overcome to unleash the full potential of the UK pension industry in achieving the UK’s net zero goals.
Barriers impact investment to climate solutions
Our report acknowledges that there is an appetite across the UK pension industry to scale up investment in climate solutions, but notes that many pension schemes are struggling to match their ambition with action. The report summarises the two key barriers inhibiting progress as:
i) Demand for finance - scarcity of investible and scalable opportunities - for example, many climate solutions face high levels of bureaucracy in permission processes or tend to be heavily fragmented rendering them less amenable to scaling, while an absence of clear national transition plans also inhibits action.
ii) Supply of financing - regulatory constraints on UK pension industry - for example, liquidity constraints and fee cap for Defined Contribution (DC) schemes limit the appeal of illiquid long-dated investments, which many climate solutions are.
Overcoming barriers
Solutions to barriers
We have identified seven strategies for policymakers and regulators that could unlock greater investment in climate solutions from the UK pension industry. We highlight four priority strategies in the short-term due to their high potential impact and relative ease of implementation:
To address demand for finance:
To address supply of financing:
Call to action
This report is intended to shine a light on the huge opportunity for our industry to scale up our investment in climate solutions in a way that delivers value to customers. In doing so, we hope to catalyse further debate, collaboration and innovation that is needed to make it happen. Ultimately, though, this report needs to translate into action. That is why were committed to working with stakeholders to deliver the priority actions outlined.
Transition plan
Scaling climate solution opportunities
Fiduciary duties
Capital charges and fees
Innovation
Doing the basics right
