The pensions of 15 million UK workers have been moved to net-zero carbon investment strategies following the universal adoption of green targets by providers last year, new research has found.
Prior to 2021, just three providers – Nest, Standard Life and The People’s Pension – had 2050 net-zero targets for their workplace pension default funds, which are used by the vast majority of defined contribution (DC) savers.
However, research by Corporate Adviser Intelligence shows that all other mainstream providers – 18 in total – adopted 2050 or earlier targets last year, making net-zero strategies universal for default pension funds.
Furthermore, most providers’ default funds have set an interim target of a 50% reduction in carbon intensity by 2030, from a 2019 baseline.
“Environmental, social and governance (ESG) investing and net-zero targets are now the norm for commercial DC workplace pensions,” commented John Greenwood, head of research at Corporate Adviser Intelligence.
“That said, many defined benefit schemes and single-employer DC schemes still do not have net-zero targets.
“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% reduction in carbon investments by 2030, which isn’t that far away.”
Pension schemes are now required by law to make ESG considerations when investing members’ money. However, while an ESG strategy involves analysing these issues, it does not mean excluding investments on moral grounds.
Despite this, almost all pension providers now exclude controversial weapons from their workplace pension default fund, while three-quarters exclude UN Global Compact violators, and a majority exclude thermal tar and coal sands investments.
Eleven out of 21 providers now exclude tobacco, up from nine a year ago.
“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,” Greenwood continued.
“This view is backed by recent research from BlackRock, the world’s biggest asset manager, which argues that the drive towards sustainability is leading to a repricing of assets across the board, with green sectors set to surge 8% between 2021 and 2025, while brown sectors will fall 9%.”
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Author: Chris Seekings