The defined contribution (DC) pension scheme market has seen almost a quarter (23%) increase in schemes’ investment in assets with climate targets since 2021, according to research from Barnett Waddingham.

The majority (86%) of DC pension schemes have set targets to reach net-zero by 2050, with 18% of these targeting 2040.

Of the pension schemes that have set net-zero targets, 81% have committed to achieving interim targets, in many cases aiming to achieve a 50% emissions reduction by 2030.

Barnett Waddingham said: “Interim net-zero targets can have a more substantial impact on net emissions than an earlier end goal.”

However, the ‘At Retirement’ phase schemes, where members approaching retirement are moved into lower-risk investment strategies, are lagging behind other pension schemes when it comes to net-zero targets.

Barnett Waddingham partner and head of DC investment Sonia Kataora added: “With demand for sustainable investment showing no signs of slowing, it’s encouraging to see that schemes are listening and driving positive outcomes for members.

“Reaching the ‘holy grail’ of net-zero will by no means be an easy feat for schemes, so the fact that the vast majority have committed to this target – but also set interim goals – is certainly a sign that we are moving in the right direction.”

Kataora believes three key actions need to be implemented across the market.

Firstly, all providers must contribute to the industry push for transparency and offer in-depth reporting on their sustainability strategies.

Secondly, pension schemes must be able to “articulate which specific sustainability-related risks and opportunities they are trying to manage using the different building blocks in their portfolio”.

Finally, effective stewardship must be joined up across voting and engagement activities to maximise benefit.

This research is based on analysis of 22 default DC pension strategies at the UK’s leading workplace providers.

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