Regulatory reforms could unlock £1.2trn of UK pension funds’ climate solutions investment

UK pension funds could invest up to £1.2trn in climate solutions with the right regulatory and policy reforms, a report by British life insurer Phoenix Group and Make My Money Matter has revealed.

The Unlocking Investment in Climate Solutions report highlighted that the UK pension industry currently has £0.1trn invested in UK climate solutions such as offshore wind, solar and energy-efficient housing. It found that if current trends continue and no further action is taken, this commitment will rise to £0.3trn between now and 2035.

Phoenix’s report revealed that there is an appetite across the UK pension industry to scale up investment in climate solutions, but funds are currently struggling to match their ambitions due to regulatory constraints and the scarcity of investable opportunities.

It stated that by removing these barriers, pension funds could quadruple their investment in climate solutions to up to £1.2trn of their UK asset allocations. This would account for half of the gross capital investment in climate solutions required by 2035 for the UK’s net zero transition pathway.

Bruno Gardner, head of climate change and nature at Phoenix Group, said: “It's exciting to see that pension funds could finance up to half of the investment needed to keep the UK's transition on track and provide savers with greater access to the investment potential of climate solutions.

“By setting out the scale of the opportunity, we hope to show that by creating a pipeline of investable opportunities and by making it easier to invest in climate solutions we can come together and drive positive change."

The report identified seven strategies for policymakers, regulators and the industry to overcome the barriers funds face when investing in climate solutions. These include: Developing a UK climate transition plan with sector-specific strategies and clear roadmaps; providing clarity on considering climate impact as part of fiduciary duties and delivering matching adjustment reform (Solvency UK), with guardrails linked to productive/sustainable finance.

Richard Curtis, co-founder of Make My Money Matter, said: “By taking these steps, this report shows how we can mobilise more than £1trn – a staggering amount – to help tackle the climate emergency, both at home and abroad.”