A majority of the leading defined contribution (DC) pension providers in the UK have “inadequate” or “poor” plans to tackle climate change, research from Make My Money Matter (MMMM) has shown.

The ethical pension campaign’s Climate Action Report, developed in collaboration with sustainability research provider Profundo, carried out assessments of the 20 largest workplace DC pension providers who hold a combined £500bn in assets under management with more than 15 million active members.

The research, carried out between September and December last year, analysed the publicly available climate documentation from the 20 providers and assessed the effectiveness of their policies, objectives and instruments towards tackling climate change and driving real world impact.

It carried out further analysis of seven key criteria on the providers’ approach to climate action: a commitment to a 1.5 degree pathway, measurement and disclosure of its carbon footprint, detailed target setting, investment in climate solutions, the phasing out of fossil fuels, deforestation and land use, and portfolio stewardship instruments.

The report revealed while the majority of the providers have established broad climate targets, including net-zero goals, many were falling short in the implementation and substance of their places. It found that on average, providers scored 3.2 out of ten, while only three of the providers were deemed to have “adequate” climate plans in place, Aviva, Legal & General and Nest, the government-backed auto-enrolment provider.

The report also noted Royal London, Prudential and Standard Life had “inadequate” transfer plans, while four providers: Hargreaves Lansdown, Mercer, SEI and The People’s Pension had the lowest ranking as they scored an average of one of ten on climate action.

The report revealed on two of the key criteria on the approach to climate change, their progress was “woefully inadequate” as on policies related to fossil fuels such as coal, oil and gas, eight of the providers scored zero out of ten. Research by MMMM conducted last year showed UK pension schemes invested £88bn into the oil and gas industries despite their commitments to reach net zero.

It also noted on deforestation and land use, all 20 providers had “poor” or “inadequate” plans, with seven of the providers scoring zero out of ten. Last year, MMMM urged pension providers to show “more urgency” to tackle deforestation and a Professional Pensions poll last year found deforestation was not considered by many schemes when approaching their investments.

Source: MMMM

MMMM said the report’s findings demonstrated the majority of the providers were failing on their plans to deliver ambitious climate plans and were at risk of “alienating” their members as failure to tackle climate change risks members’ long-term financial returns.

Co-founder Richard Curtis said: “Climate leadership is not just important for the planet – it’s popular too. The fact that 17 of the UK’s top 20 providers have inadequate or poor climate plans tells you all you need to know about how seriously the industry is taking this issue.

“The public will rightly be worried about these results, and we hope this ranking acts as an urgent wake up call for the pensions industry to up its game on climate change. In doing so they can help protect the planet and provide savers with pensions they can be proud of.”

Chief executive Tony Burdon commented: “In a year where an average temperature rise of 1.5 degrees Celsius was exceeded for the first time, this report should concern everyone who cares about their pensions, or the planet.

“While there are pockets of progress which indicate what funds could achieve if they showed energy and ambition, overall leadership is scarce and progress slow. That’s why we now need all pension providers to recognise the findings of this report and invest in the skills and capacity needed to meet the climate crisis.”

Profundo director Jan Willem van Gelder added: “Given the disappointing results, I encourage UK pension providers to use the methodology of this study as a guide on what the public can expect of a robust climate action plan. Grand commitments to tackle climate change need to be followed by bold actions.”

Industry response

Commenting on MMMM’s report, a spokesperson for The People’s Pension told Professional Pensions: “While we support MMMM in its efforts to push for real change in the industry, addressing climate risks and opportunities is incredibly complicated and nuanced, with many different viable ways to address them.

“The People’s Pension remains committed to aligning its portfolio to 1.5 degrees and we have been working hard on the issue for a long time to find the right solutions for our 6.5 million members to ensure we deliver value.

“We will be making an announcement about long-planned changes to the approach in the near future.”

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