UK pension funds remain committed to climate and nature investments despite political pressure, according to new study.
UK pension schemes are increasingly committed to climate- and nature-focused investing, even amid geopolitical instability and the growing politicisation of net-zero, according to new research.
The report, Climate Innovation – Investing in the Net-Zero Economy, released by Pensions for Purpose and commissioned by SAIL Investments, found that 40% of UK pension schemes now have dedicated climate allocations, while 60% regard climate risk as a core fiduciary responsibility.
“In our conversations with pension funds, we found that they do not expect political volatility, particularly in the US, to stall progress on climate strategies in the UK. The general view is that any political backlash against ESG will remain largely contained and is unlikely to reverse the momentum that has already been built across markets. That said, it is recognised that this could pose challenges for asset managers operating across different geographies,” according to Bruna Bauer, research manager at Pensions for Purpose.
Speaking to Impact Investor, Bauer added: “Over the past few years, we have seen more pension funds setting net-zero targets, strengthening their stewardship practices and refining their engagement strategies.
“The focus is no longer on box ticking,” said Bauer. “Asset owners are embedding climate and nature across entire portfolios, public and private, developed and emerging markets, in a systematic push for measurable results.”
According to the paper, rather than isolating climate strategies in specific asset buckets, many pension funds are now adopting a whole-portfolio approach. Furthermore, integration of biodiversity considerations is also on the rise, although challenges such as inconsistent data and limited investment scale persist, the study found.
“In terms of governance practices, we’re seeing climate change consistently top stewardship priorities, with biodiversity and nature close behind. Schemes are working to integrate these themes into their investment strategies strategies, reporting frameworks and manager selection processes. That said, smaller schemes sometimes face resource challenges that make it harder to move as fast as they’d like,” added Bauer.
Key findings
According to the report, UK pension funds are increasingly allocating capital towards emerging markets, with 87% now allocating or planning to allocate capital to these regions, a trend mainly driven by the increasing availability of climate-related opportunities such as renewable energy, sustainable supply chains, and nature-based solutions.
Nature-focused strategies like forest restoration and sustainable timber are also gaining traction, although concerns about their credibility, scalability, and how to measure their impact remain.
In listed equities, engagement and stewardship have overtaken divestment as the preferred tools for driving decarbonisation. However, the infrastructure needed to support the energy transition, especially in sectors like transport, utilities, and heavy industry, still faces significant underfunding.
Michael Schlup, chief sustainability officer at SAIL Investments, said: “To reach net zero, we must go beyond mitigation. The interconnection between climate and nature creates investable opportunities that are still largely untapped.”
