In a move towards increased environmental responsibility, UK master trusts are intensifying their efforts in addressing climate change, however, they are receiving criticism due to their continued investment in fossil fuel industries.
In a recent Climate Action Report produced by Make My Money Matter and Profundo, several UK master trusts have been criticised for their perceived lethargy in phasing out fossil fuel investments. The report, which focuses on the 12 largest defined contribution (DC) master trusts by membership, highlights a mix of engagement, setting interim emissions reduction targets, and selective divestment as the core strategies being adopted by these master trusts.
The strategic approach involves engagement and active stewardship to encourage companies to transition their business models towards net zero, setting clear milestones to reduce carbon emissions intensity, selective divestment from sectors deemed incompatible with net zero transition, and supporting transition-capable companies rather than wholesale avoidance of all fossil fuel-related companies. This strategic stance is described as a journey, acknowledging the complexity of transitioning over time with ongoing assessment and adjustments to meet ambitious net zero targets.
Some of the key strategies being employed by UK master trusts include:
- Engagement and active stewardship: Encouraging companies to transition their business models towards net zero.
- Target setting: Clear milestones to reduce carbon emissions intensity.
- Selective divestment: From sectors deemed incompatible with net zero transition, such as thermal coal mining.
- Supporting transition-capable companies: Rather than wholesale avoidance of all fossil fuel-related companies.
The report, however, criticises many UK pension providers for not taking the necessary steps in dealing with the fossil fuel sector. Some of the providers surveyed, including Aegon, Aviva, Fidelity International, Legal & General, Royal London, Standard Life, and Scottish Widows, continue to invest in ExxonMobil.
Notably, some of the largest Dutch pension funds, such as ABP, PMT, and PFZW, have already sold the bulk of their fossil fuel holdings. The UK's largest providers, including Nest, Now: Pensions, Smart Pension, and the People's Partnership, are increasing their efforts to implement net zero pledges.
The report this year focuses on the investment strategies for the master trust's default fund rather than considering wider sustainability metrics for the overall business. Jan Willem van Gelder, director of Profundo, stated that UK master trusts lag behind their European peers. Tony Burdon, CEO of Make My Money Matter, stated that some providers have improved their policies on climate and nature, but others continue to fail.
Aviva and Legal & General, despite investing in fossil fuels, voted for the chair, directors, and remuneration at Shell and BP annual general meetings in 2024. The oil and gas sector, despite the climate threat, is consciously investing billions in new developments. The International Energy Agency demonstrated in 2021 that no new oil and gas fields should be developed anywhere in the world.
The report showed that pension providers received the weakest scores in their commitment to phasing out fossil fuels, with an average score of 2.9 out of 10. ExxonMobil plans to increase its oil and gas output by 18% over the next five years. The report criticises many UK pension providers for not taking the necessary steps in dealing with the fossil fuel sector.
[1] Source: Climate Action Report 2025, Make My Money Matter and Profundo.
- The strategic approach in environmental-science terms involves encouraging businesses, particularly those in the fossil fuel sector, to transition towards net-zero emissions through engagement and active stewardship.
- Businesses, such as finance-oriented entities like Aegon, Aviva, Fidelity International, Legal & General, Royal London, Standard Life, and Scottish Widows, face criticism for not phasing out fossil fuel investments and for continuing investments in companies like ExxonMobil, despite the recognized urgency of climate-change mitigation.
