DC providers fail to commit to ending fossil fuel expansion

The Make My Money Matter campaign sent questionnaires to the country’s 20 biggest DC providers. Eighteen replied, with the campaign relying upon publicly available information for Mercer and SEI, neither of which responded to the survey.

As well as failing to publicly commit to ending fossil fuel expansion, three-fifths have not published 2025 targets to reduce emissions.

Half of providers do not have explicit voting policies aligned with meeting global temperature goals, while four-fifths have not publicly committed to eliminating deforestation from their portfolios.

It’s clear that there is room for improvement

Hilkka Komulainen, Aegon UK

More to be done

The providers were asked 10 questions as part of the survey. The report summarised providers' replies to five questions, which also asked if they planned to increase their allocations in climate solutions investments. Mercer and SEI were marked as negative under all five questions. 

According to the campaign, Mercer declined to respond to the survey. A Mercer spokesperson said: "Mercer participates in a number of surveys throughout the year. As a global company, we do not respond to all surveys received."

SEI has been contacted for comment.

“Twelve months on from COP26 in Glasgow, climate action from the UK pensions industry remains insufficient and fragmented,” Make My Money Matter chief executive officer Tony Burdon said.

Aegon, Fidelity, Hargreaves Lansdown, Mercer, National Pension Trust, Now:Pensions, SEI and the People’s Pension were categorised negatively over whether they planned on increasing their investment allocations in climate solutions over the next 12 months.

Pensions Expert has contacted these providers. It is understood that Fidelity does have plans to increase its investment in climate solutions. A MMMM spokesperson said that Fidelity did not meet its criteria for this metric.

Head of National Pension Trust Paul Armitage meanwhile told Pensions Expert: "As of March 2022, 100 per cent of the assets within the Trust’s default are already invested in climate solutions.

"The majority of these funds sit within the SSGA Transition Pathway Initiative Index Equity Fund," he continued, which he said "aligns capital with the ability of corporates to demonstrate the transition to a reduction in carbon intensity".

“We are also planning to expand the number of sustainably invested self-select funds from which members who want to decide on their own investment design can select.”

Leanne Clements, head of responsible investing at B&CE, provider of The People’s Pension, told Pensions Expert: "While increasing our allocation in investments in climate solutions is intended, given the complexities involved in developing a robust net zero strategy we want to establish clear and achievable milestones before we share the roadmap to achieving our objective." 

"We will be updating our climate change policy in 2023, which will provide further, clear detail on how we will deliver our commitments,” she added.

"It’s clear that there is room for improvement," Aegon UK head of responsible investment Hilkka Komulainen told Pensions Expert. "We see industry collaboration to be essential in driving forward real world action."

“Since the research was carried out, we’ve been actively building out our approach across these areas and have already made substantial progress. We approved a new stewardship and voting policy aligned with the Paris agreement, including expectations for our asset managers to engage companies on their transition plans.

"In addition, our forthcoming net zero transition plan, our climate roadmap, will outline progress across other areas of the Make My Money Matter rating, including short-term emissions targets. We do expect the roadmap to include climate solutions."

The campaign has identified five goals for pension schemes to consider as part of the global transition to net zero.

It urged schemes to adopt short-term, 2025 targets for emissions reductions, advising that achieving a halving of emissions by 2030 would require an average annual reduction of more than 7 per cent between 2020 and 2030.

It also called on schemes to restrict fossil fuel expansion, take action on deforestation, invest in climate solutions and undertake active stewardship.

In June, the campaign published a list of the UK’s 20 largest schemes to have allegedly not set net zero targets. 

When contacted by Pensions Expert, BMW disputed its inclusion on this list.