Pension funds and the path to net zero

Survey pinpoints several barriers threatening pension funds’ progress

Sixty-five per cent of pension funds recently surveyed by the Pensions and Lifetime Savings Association (PLSA) have established a commitment to achieving net zero carbon emissions. Progress also appears to be on the horizon for the third of funds without a current commitment, as one in five (22%) anticipate adopting a net zero target within the next five years.

Among the schemes committed to net zero, nearly a quarter (23%) aim to reach this ambitious goal by 2040. Meanwhile, a majority (44%) are set on achieving net zero between 2040 and 2050. While these timelines may seem promising, the road to net zero has significant obstacles.

Understanding the challenges pension schemes face

The survey pinpoints several barriers threatening pension funds’ progress toward their net zero goals. Chief among them is the lack of high-quality data, cited by 59% of respondents as a key issue. This is compounded by uncertainty around future government policies, which concerns 55% of those surveyed.

Adding to the complexities, a third of participants identified regulatory ambiguity and limited investment opportunities in low-carbon assets (35%) as serious impediments. These roadblocks underscore the pressing need for systemic changes to enable funds to take more decisive action.

Turning challenges into opportunities

Despite these obstacles, many pension funds actively implement strategies to meet climate objectives. Notably, 90% of those with net zero commitments work directly with companies to reduce emissions. Investment in renewable energy is also a high priority, with 80% of respondents backing this.

Other notable initiatives include improving energy efficiency in real estate portfolios, an area pursued by 53% of respondents, and divesting from high-carbon assets, a move embraced by 41%. These actions demonstrate a willingness across the sector to tackle the crisis head-on, albeit with challenges remaining.

A broader call for strategic plans

An encouraging 76% of survey participants strongly supported the development of credible transition plans. These plans, aligned with the Paris Agreement’s 1.5°C target, are critical to realising long-term climate goals. While progress in addressing climate issues is tangible, a new focus is emerging on biodiversity and nature-related risks.

However, awareness of biodiversity-related frameworks still needs to be improved. Only 17% of respondents reported being well-versed in the recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD). This knowledge gap underlines the importance of frameworks such as the Kunming-Montreal Global Biodiversity Framework and TNFD in guiding organisations forward.

Tackling the links between biodiversity and investments

Addressing biodiversity challenges adds another layer of complexity. The survey highlights barriers such as establishing measurable biodiversity targets, which 77% of respondents find difficult. Similarly, understanding and assessing biodiversity-related risks proves challenging for 68% of pension funds.

Nonetheless, there is optimism. Some 73% of organisations planning to adopt the TNFD’s recommendations aim to do so within five years, signalling a growing commitment to integrating biodiversity into financial decision-making. This progress mirrors the gradual but determined pace of climate action within the pensions sector.

Bridging the gaps ahead

The findings emphasise the need for clearer frameworks, improved availability of actionable data, and more substantial governmental support to overcome barriers. While strides have been made in tackling climate-related agendas, biodiversity efforts lag behind and require urgent attention to bridge this growing divide.

Pension funds are pivotal in driving environmental sustainability through their significant influence on investments. As the march towards net zero and broader ecological goals continues, stakeholders across the financial landscape must collaborate, innovate, and align on these key issues.

Ready to shape a sustainable future?

Contact us today if you are seeking to deepen your knowledge of these issues or understand how to integrate net zero and biodiversity goals into financial strategies. Together, we can shape a sustainable future. We look forward to hearing from you.

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