Defined contribution (DC) pension schemes are increasing investment in climate-focused funds, despite major global asset managers pulling out of key climate initiatives, according to Barnett Waddingham.
Research shows a 34 per cent rise in DC allocations to funds with climate targets since 2021. This comes as firms like BlackRock, Vanguard, State Street and Northern Trust, managing $25 trillion, exit alliances such as the Net Zero Asset Managers initiative.
Most UK DC providers view climate risk as financially important, even as 35 per cent of growth assets remain with managers who have withdrawn from climate commitments.
Barnett Waddingham is urging schemes to strengthen oversight, regularly review climate targets, and take more control over how their managers act on sustainability.
Barnett Waddingham partner and head of DC investment Sonia Kataora says: “Despite the winds of change blowing in a new direction, DC providers are holding firm and sticking to their guns on sustainability. This is critical if they are to uphold their roles as stewards of capital, achieving the best outcomes for members financially.
“It is certainly a tumultuous time, both in terms of the global anti-ESG backlash and the seismic changes to policy and structure of pensions coming from the upper echelons of the UK Government. Those pushing for minimum size thresholds for DC providers must remember that scale alone does not guarantee sophistication.
“Of course, scale can amplify impact. Larger providers can wield significant influence by directing capital away from underperforming managers, and they have a unique position to push for stronger stewardship and set higher standards for responsible investment. But smaller schemes can also use their powers effectively, focusing their resources on the things that really matter to their members and collaborating to impact policy; some of the leaders of the pack on good ESG are smaller schemes.”