Fund Solutions

UK Pensions Set to Support Emerging Markets’ Climate Transition

Funds plan to align their investment strategies ahead of COP27. 

Twelve of the UK’s largest pension funds have come together to support the climate transition in emerging markets.  

“We hold government debt, shares and bonds, and invest in many companies [in emerging markets] that have committed to net zero – so what’s holding pension funds back?” said Adam Matthews, Chief Responsible Investment Officer for the Church of England’s Pension Board, speaking at the Net Zero Delivery Summit, hosted by The City of London Corporation.  

“Fundamentally, it’s often misconceptions and a lack of knowledge about what it means to support the climate transition in emerging economies. However, the scale of financing needed requires [pension funds] to approach this differently,” he said.  

The 12 pension funds, including Brunel Pension Partnership, BT Pension Fund and Railpen, manage a combined £400 billion in assets. They met with UK Pensions Minister Guy Opperman to outline the steps they intend to take to ensure their investment strategies bolster the transition efforts of emerging markets ahead of COP27 in Egypt later this year.  

Each pension fund has committed to better understanding the needs of emerging economies and the climate transition finance that will be required by governments and companies. Further, the pension funds will be working together to scale investments in support of the climate transition. 

Whilst we can invest individually – and a number of us already do – a greater impact and scale of commitments can be achieved,” said Matthews.  

In April, a report published by the UN-convened Principles for Responsible Investment (PRI) noted that increased investment in emerging markets has the potential to deliver a greater real-world impact than investing in developed markets, therefore mitigating some of the worst impacts of the climate crisis. 

Further, a recent report published by the NGO Climate Bonds Initiative highlighted that increased investment in green, social and sustainability debt could serve as a key channel for investors looking to support climate adaptation in emerging markets.  

UK Work and Pensions Secretary Therese Coffey has also confirmed that UK pension schemes will be granted more flexibility to make climate-positive investments in real assets, following a consultation in November on proposed changes to the regulatory charge cap for defined contribution pension schemes to better enable investment in a broader range of asset classes.  

More than half of UK pension funds representing £150 billion already hold some kind of impact investment and are targeting the UN Sustainable Development Goals relating to climate action, according to a survey by Pensions for Purpose and Big Society Capital. 

The largest UK pension schemes have also been producing Task Force on Climate-related Financial Disclosure-aligned reports since October 2021. 

“The journey to net zero requires consistent, co-ordinated and positive action if we are to meet the Paris targets,” said Rachel Elwell, CEO of Border to Coast Pensions Partnership.  

“This includes supporting emerging markets manage a just transition to net zero, while supporting their continued economic growth. As a long term, responsible investor, Border to Coast is committed to working with other investors, governments, and regulators to deliver real economy emissions reductions.” 

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