Number of pension funds with net zero commitment continues to rise

30 November 2023

More than two-thirds of pension funds have a commitment to net zero alignment in place (68%), according to a PLSA survey, up from just over half (57%) in May 2022.

The survey results have been published on the eve of COP28 and as pension professionals meet in London for the PLSA’s ESG Conference to explore the most recent developments in the quickly evolving responsible investment landscape and share best practice to deliver the improved outcomes for savers.

Of the funds with a commitment in place, nine out of 10 are targeting being net zero compliant by 2050. Among those, some aim to be compliant earlier, with one in seven by 2035 (14%) and one in five working towards 2035-2040 (18%).

Of the 27% of funds that don’t have a net zero commitment in place, one in 10 (10%) anticipate having one in the next one to two years, while one in five (20%) say they will have one in place in two or more years.​

Most continue to feel their fund has made significant progress in playing its part in the transition to a net zero society (64%), in line with what was found in 2022 (70%).

However, more now say their focus on ESG has been reduced because of other priorities such as the cost-of-living crisis and market volatility (31%) compared to in 2022 (12%).​

Most respondents (75%) continue to be concerned about recent news updates, which suggest there is no sustainable pathway to limiting global temperature rises to 2˚C.

Furthermore, confidence in the UK meeting its climate targets has declined since November 2022. More than two-thirds (68%) now believe that the UK will not meet its climate targets, compared to less than six in 10 (59%) in November 2022.

The majority (80%) believe the Prime Minister’s recent announcement to delay net zero target deliveries will have an impact on transition plans.

More now feel there are obstacles the UK Government could remove to assist pension funds in their work to address climate risk (67%, up from 53% in November 2022).​ More now also feel the Government should be doing more to enable investors to do more on climate risk (69%), up from over half in November 2022 (56%).

Responsible investment and climate change has been a policy priority for the PLSA for a number of years and the association has invested considerable effort to identifying how barriers to further carbon-aware investing can be surmounted by pension schemes and through policy interventions.

In October 2020 the PLSA published a list of recommendations which included resourcing joint-industry and government initiatives to clarify definitions, increase the quality and availability of necessary data, improve the supply of suitable climate-aware investment products.

In January 2021 the PLSA, along with the Association of British Insurers (ABI) and the Investment Association (IA) produced a Carbon Emissions Template to help pension schemes meet their obligations under the Climate Change Governance and Reporting Regulations.

According to the PLSA’s most recent survey, most pension funds now feel that the quality of ESG data provided by asset managers has improved (75%), with most saying it has improved a little (63%), with one in 10 saying it has improved significantly (12%).​

Around six in 10 feel that asset managers (57%) and investment consultants (60%) have responded well to the challenges of improving climate reporting.

To view further PLSA work on climate change, visit the Responsible Investment Hub.

Joe Dabrowski, Deputy Director – Policy, PLSA, said: “We’ve tracked our members’ preparedness for net zero over a couple of years now and are really pleased to see their progress as data quality has improved.

“The latest research indicates the window to limit global warming to 1.5˚C may be closing. This has grave consequences for society, pensions and savers. It’s crucial that the Government delivers on its green transition strategy and avoids creating any uncertainty with mixed messaging on its climate and sustainability objectives.”

The research was conducted by the PLSA among its members from 4-17 October 2023. A total of 81 members responded to the survey. Half (51%) of respondents had more than £3bn in assets and 93% had more than 1,000 members.

Source: PLSA