UK pension funds are dangerously misaligned with the goal of reducing greenhouse gas emissions fast enough to limit global warming to the critical threshold of 1.5C, a fresh study has found.
The industry holds more than £88 billion ($110 billion) in bonds and equities issued by fossil fuel companies, according to a report published Wednesday by Make My Money Matter, a climate finance campaign co-founded by Love Actually director Richard Curtis. That’s roughly 10 times as much as UK pension funds hold in listed FTSE 350 clean energy stocks, it said.
To reach net zero emissions by 2050 and prevent catastrophic overheating, the investment industry needs to allocate four times as much capital to renewable energy as to fossil fuels by the end of this decade, according to an analysis by BloombergNEF. And the International Energy Agency has made clear that halting new fossil fuel expansion is the only way to reach the 1.5C goal.
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“As a result, we believe that ongoing investments in fossil fuel companies by the UK pensions industry – without a serious, time-bound and co-ordinated escalation in how investors use their stewardship role – represents a ticking time bomb for both our pensions and the planet,” the authors of the report wrote.
Specifically, Make My Money Matter is urging pension funds to get the fossil fuel companies they hold to rule out new oil and gas expansion, in line with a 1.5C trajectory. Funds should also vote against companies that continue to expand their fossil fuel business. If companies can’t live up to these criteria, public divestment “within set timeframes” should be the next step, according to the authors.
The Pensions and Lifetime Savings Association is “committed to working with members to help them achieve their net zero goals,” Joe Dabrowski, PLSA’s deputy director of policy, said in an emailed comment. “Pension schemes have a significant interest in ensuring that the companies they invest in are fully prepared for a lower carbon future” and can use their votes as shareholders to that end, he said.
He also called on the government to establish clearer guidelines for the industry.
Some firms are already divesting. Last week, the Church of England Pensions Board said it was blacklisting all oil and gas assets, a move that entailed offloading its stake in Shell Plc. That followed an announcement by the oil major that it was stepping up spending on fossil fuels and limiting investment in renewables to projects.
A separate Church investing body, the Church Commissioners for England, made a similar announcement. The two investors represent a combined $17 billion in assets.
The broader UK pensions industry, which manages about $3.7 trillion, remains heavily exposed to Shell, however, the report found. About 70% of the funds analyzed said their biggest holdings included Shell and 60% held BP Plc shares among their top picks, while none had renewable energy stocks among their leading selections.
Continued investment in a growing fossil fuel industry adds to the risk of “a disorderly transition,” the authors of the report said.
A separate study, published by five nonprofit organizations including Reclaim Finance, found that the 30 biggest asset managers hold at least $3.5 billion in newly issued bonds from companies actively engaged in fossil fuel expansion.
In total, the firms analyzed held almost $600 billion in bonds and stocks in the biggest developers as of January, according to the report. Researchers also noted that the figures likely underestimate actual holdings because asset managers don’t always disclose everything they own.
The holdings reflect unsuccessful efforts to engage with fossil fuel companies, according to the report. It singled out Climate Action 100+, a $68 trillion investor group with a stated goal of working with companies to help them transition to low-carbon business models.
“After five years of intensive dialogue by investors from the CA100+ initiative, only 20% of the companies from the coal mining and oil and gas sectors that have been engaged have even set an ambition to achieve net zero emissions by 2050,” the nonprofits said.
They added that they’re now “urging the institutional clients of these asset managers, which include pension funds, to demand they urgently strengthen their policies.”
(Adds comment from nonprofit groups in final paragraph.)
