Three out of four pension schemes have now adopted net zero targets, with more schemes now taking action to address climate risks, according to analysis by XPS Group.
The consultants said that was a significant increase from last year where just 60 per cent had set net zero goals.
XPS Group adds that 69 per cent of schemes have made asset allocation changes to address climate risks. It says this is a significant increase on previous years, suggesting that climate risk analysis is driving changing investment decisions
Meanwhile 42 per cent of schemes now have some direct investment in climate solutions. XPS expects this to grow as the opportunities and availability of low carbon solutions increase over time.
It adds that the average Implied Temperature Rise of the schemes reported was 2.4°C. This is lower than the average reported last year (2.8°C) and the latest scientific estimates of global progress (2.7°C), but above the Paris Agreement goal of keeping global warming at least below 2°C, suggesting schemes are holding assets at risk of value deterioration as the transition accelerates.
This XPS report is based on the analysis of TCFD report from 48 pension schemes, covering £400bn AUM. XPS says this analysis shows that the majority (three quarters) of these schemes have now set clear plans to meet net zero targets, suggesting that both uptake and credibility of these goals has improved amongst schemes.
This renewed commitment comes at a time when some governments companies and asset managers have pulled back on ESG and climate change targets.
XPS Group says this direction of travel makes it more important than ever that pension schemes are reviewing their exposure to these risk issues. Inaction in the short term increases the risk of financial disruption from extreme physical weather events, as well as regulatory disruption when the low-carbon transition does eventually accelerate.
XPS Group head of ESG research Alex Quant says: ”These findings highlight the significant strides pension schemes are making towards net zero targets.
“It’s good to see more pension schemes having clear, actionable plans focusing on forward-looking alignment to the climate transition. Given the recent significant setbacks for the low carbon transition at the Government and industry level, we urge trustees to take the time to fully understand the risks and opportunities they are exposed to”.
