United Kingdom-based pension funds intensify climate action measures, yet encounter scrutiny due to persistent investments in fossil fuel sectors.
A new report by the campaign group Make My Money Matter and Dutch research organisation Profundo has highlighted the efforts of the UK's largest pension providers towards net-zero pledges, while also revealing a more cautious approach compared to their European counterparts.
The report surveyed 12 providers, including Nest, Now: Pensions, Smart Pension, and the People's Partnership, and found that these UK master trusts are adopting a selective divestment strategy, focusing on sectors unlikely to transition to net-zero, such as thermal coal. However, they are also supporting companies or sectors that demonstrate a credible pathway towards net zero.
In contrast, European pension funds and investment platforms are often pursuing more aggressive fossil fuel divestment policies or accelerating transition plans through stricter exclusion criteria and more rapid reinvestment in renewables and low-carbon technologies.
The UK master trusts' net-zero target is aligned with the UK government and Paris Agreement goals to achieve net-zero emissions by 2050. This reflects the UK's master trusts’ recognition of financial risks in fossil fuels balanced with pragmatic transition support.
The report revealed that pension providers received the weakest scores in their commitment to phasing out fossil fuels, with funds averaging 2.9 out of 10. Nest pension provider is now ranked number one in the report.
Seven of the 12 providers surveyed, including Aegon, Aviva, Fidelity International, Legal & General, Royal London, Standard Life, and Scottish Widows, continue to invest in ExxonMobil despite the oil giant's plan to increase its oil and gas output by 18% over the next five years. This has led to criticism from some quarters, with Tony Burdon, CEO of Make My Money Matter, stating that while some providers have improved their policies on climate and nature, others like Standard Life and Royal London continue to fail their savers.
Meanwhile, ExxonMobil, an oil giant, plans to increase its oil and gas output by 18% over the next five years, a move that has been met with criticism from climate activists.
The report this year prioritizes pension scheme members and focuses on investment strategies for the master trust's default fund rather than considering wider sustainability metrics for the overall business. It is worth noting that some of the largest Dutch pension funds, including ABP, PMT, and PFZW, have already sold the bulk of their fossil fuel holdings.
In summary, UK master trusts are adopting a cautious but committed approach to phasing out fossil fuels, using divestment selectively, particularly excluding companies heavily reliant on thermal coal, and supporting companies or sectors that demonstrate a credible pathway toward net zero. This contrasts with more rigid European divestment strategies focusing on quick phase-outs and systemic fossil fuel exclusions aligned with ambitious climate policies.
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