“Tougher” Stewardship Needed from UK Pensions
Campaign group accuses big name providers of “lethargy” on climate and nature action.
An assessment of large UK pension providers has found that existing stewardship efforts are falling short of driving positive climate- and nature-related performance across their portfolios.
UK-based campaign group Make My Money Matter (MMMM) has published a report analysing the country’s 12 largest pension providers on their climate- and nature-related progress across seven core indicators, including their commitment to a 1.5°C temperature pathway, investments in climate solutions, fossil fuel phase-out, and portfolio stewardship instruments.
The annual ‘Climate Action Report’ noted that the majority of assessed pensions received just ‘adequate’ or ‘inadequate’ scores for their stewardship.
“We have seen signs of extremely weak stewardship across the board – if [these pension providers] want to stay invested in carbon-intensive companies to drive change, then they need to get far tougher,” Huw Davies, Senior Finance Advisor at MMMM, told ESG Investor.
“That goes from their climate and nature policies being more specific and stronger across voting, escalation, and exclusion.”
Shareholder action against fossil fuel firms has been especially weak, the report said. Aviva and Legal & General collectively voted in support of management 44 out of 45 times at Shell and BP’s annual general meetings last year, it noted.
If a portfolio company isn’t credibly committed to or demonstrating transition progress or nature action, then investors should look to vote against their chair, directors and pay packages, Davies said.
“Pension providers also need to prioritise clearer and more robust escalation,” he added.
“This should include exiting debt, freezing or divesting equity, calling on governments to drive change, and providing more transparency on their stewardship practices.”
Last year, MMMM launched a campaign to hold UK-based asset managers accountable on their softening stance on climate stewardship at fossil fuel firms.
“The finance industry is incredibly powerful and has an important role to play in driving the green transition,” said Davies.
“I think the lack of progress could be down to a mixture of things, such as a lack of ambition, insufficient prioritisation and capacity, and weak leadership.”
In response to the report, Mark Hill, Climate and Sustainability Business Lead at The Pensions Regulator (TPR), said: “Climate change will impact the long-term performance of pension investments. Most pension schemes meet their legal duties, but our research shows many are only doing the minimum.”
He noted that TPR is challenging schemes to ensure they consider “a broad range of material risks which could threaten their savers’ retirements”.
Slow progress
On average, the group of pension providers achieved a score of 4.5 out of ten on climate and nature action, with MMMM highlighting their continued investment in new fossil fuels and limited action against deforestation.
Nest topped the table with an overall score of 5.8 out of ten – a 0.7 increase on the previous year – followed by Aviva and Now: Pensions with 5.5 out of ten, and Smart Pensions with a score of 5.4.
“The scores this year show a persistent failure by the UK pension sector to address their role in financing the climate and nature crises,” said Davies.
“Yet, over the last year we’ve seen numerous instances of climate and nature disasters, starting with the recent fires in in California.”
MMMM also identified “lethargy from household names” Standard Life and Royal London, who scored the lowest of the cohort with 3.5 and 3.3 respectively.
Seven of the 12 assessed pension funds – including Aegon, Aviva and Legal & General – continue to invest in ExxonMobil, the report said. This is despite the fact Exxon has outlined its five-year plan to boost oil and gas output by 18% and the pension funds’ own commitments to halve their emissions by 2030.
Exxon’s ambitions contradict the International Energy Agency’s net zero pathway projections.
The oil and gas major has also previously pursued legal action against climate-focused shareholders. Despite this, Exxon’s directors received 87-98% support for re-election from shareholders in 2024 – only a slight decrease from the 91-99% range in 2023.
The report was developed in partnership with sustainability research provider Profundo.
More is possible
Although progress is slow, UK pension providers are moving in the right direction, said MMMM’s Davies.
“The overall score has risen from 3.9 last year to 4.5 – so we did see some improvement across nearly all themes – but this is still not enough for the situation we are in,” he said.
The highest score across each theme combined would have produced an overall score of 7.6 out of ten, which MMMM has encouraged the pension providers to view as a public benchmark of what is possible.
Last year, TPR called on pension trustees to familiarise themselves with recommendations from the UK Transition Plan Taskforce, Taskforce for Nature-related Financial Disclosures and Taskforce for Social Factors to improve their understanding on material ESG considerations, such as nature degradation.
“Averting the worst of an impending climate and nature catastrophe is humanity’s biggest collective challenge of our time,” said MMMM CEO Tony Burdon.
“Our pension industry, our high street banks, government, and regulators all now need to step up and treat it as such.”
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