A report argued that pension schemes are presently held back from allocating further capital into green investments because of a number of barriers
The UK pensions industry could invest up to £1.2 trillion in decarbonisation strategies and technology, if given the freedom and impetus to do so, according to a report from Phoenix Group and Make My Money Matter.
The report argued that pension schemes are presently held back from allocating further capital into green investments because of a number of barriers.
The firms said the main hurdles to “climate solution” investment for pension funds are a scarcity of investible and scalable opportunities, and regulatory constraints.
In the case of the former problem, the report stated trustees face “high levels of bureaucracy in permission processes” when it comes to some investment strategies.
It also identified liquidity constraints and fee caps for DC schemes as hurdles, as they restrict the appeal of illiquid long-dated investments, which are characteristic of many net-zero investments.
In order to remove these obstacles, the duo proposed the instalment of an economy-wide transition plan for the UK, which defines a range of sector-specific strategies, roadmaps and policy instruments to support low-carbon investment.
At the same time, the government could help scale green investment and also incentivise funds to invest in decarbonisation.
The pair suggested that it could do this by aggregating fragmented investment opportunities and providing consistent planning regime at national level, while introducing tax subsidies to lessen net-zero investment volatility or to abate costs for start-up technology providers.
The report estimated that pension funds presently allocate around £100 billion into “climate solution” investments and, based on present circumstance, are on track to raise this to £300 billion by 2035.
Phoenix Group head of climate change and nature, Bruno Gardner, said the report sets out the significant role the pension industry could play while continuing to prioritise the best outcomes for pension savers.
It is exciting to see that pension funds could finance up to half of the investment required to keep the UK’s transition on track and provide savers with greater access to the investment potential of climate solutions, but it is even more important to have identified why there is not already more funding for climate solutions and what can be done about it, Gardner added.
This research will help us start much-required conversations with government, regulators and our peers so that we can collectively help pension funds fulfil their potential in the nation’s journey to net zero, he added.
By setting out the scale of the opportunity, we hope to show that by creating a pipeline of investable opportunities and by making it easier to invest in climate solutions we can come together and drive positive change, Gardner said.
Adding to this, Make My Money Matter co-founder, Richard Curtis, said pension schemes are “nowhere near” maximising their potential as investors in decarbonisation.
By taking these steps (outlined in the report), we can mobilise over £1 trillion to help tackle the climate emergency, both at home and overseas, Curtis added.
He said: By doing so we can put our money to work for people, planet, and a prosperous retirement, and make sure we all have pensions we can be proud of.