The Universities Superannuation Scheme (USS) is expanding its responsible investment leadership role with a push for greater policy coordination across government, which it believes would enable pension funds to more effectively contribute to net zero.
The £76bn pension scheme – the biggest in the UK – has developed a new approach to responsible investment, streamlining its activities into four key areas of focus: climate, nature, governance and people.
“The big challenge we’ve got is a lack of joined-up thinking,” said Sandra Carlisle, head of responsible investment at USS Investment Management, the scheme’s in-house investment unit.
“You will hear a lot from us in the next couple of years. We want to show visible leadership as the one of the biggest schemes in the UK.”
Sandra Carlisle, USS
“Getting to 2050 will require us to think across the whole energy system from production through to storage, transmission and use.”
Carlisle told Pensions Expert: “We’ve joined all of this up. Let’s just say joined-up thinking [across government] would be good. There’s not a lot of it.”
Policy advocacy is one of the four implementation methods for its key priorities. The others include: further integrating material environmental, social and governance issues into USS’s investment process; working with peers and partners across the investment chain as well as academics; and applying stewardship to improve corporate behaviour.
“We’re going to be focusing on advocacy a lot over the next several years,” Carlisle continued. “We have a very strong home bias but also want to see this globally and will advocate in partnership with our peers.
“We’re going to be narrow and deep, rather than broad and shallow. There are lots of legitimate areas we will not be focusing on – as others are better placed to advocate for them.”
Setting realistic goals
Carlisle acknowledged that the economy “can’t just a flick a switch and suddenly move to a lovely green world” where everything is powered by renewables.
Her team is talking to the Department for Energy Security and Net Zero about USS’s expectations and what the department will be focusing on during this parliament.
She said institutional investors “definitely” need the right policy framework. “As investors we don’t set the framework – so you will hear a lot from us in the next couple of years,” she explained. “We want to show visible leadership as the one of the biggest schemes in the UK.”
Carlisle said a lack of joined-up thinking was standing in the way of companies investing in sustainable opportunities. For example, motorway service station company Moto – which USS owns – is ready to create the UK’s largest electric vehicle charging network but is prevented from doing so by the inability to gain sufficient connections to the grid.
“The economics are very good, and there clearly is a long-term net zero benefit,” Carlisle said. “As a business strategy it makes sense, but if it can’t get grid connection, it can’t do the rollout.”
Responsible investment, USS-style
Carlisle joined USS in January 2024 and has since been refining its responsible investment strategy.
“We’re going to take a ‘less is more’ approach, very focused, and communicate our priorities very clearly with our members and stakeholders,” she explained.
“We have a legal duty to make sure we can pay pensions when they’re due. Responsible investments that provide good returns and help tackle climate change can play an important part in this.”
USS is not taking an impact investment approach, remaining focused on improving member outcomes. “We would never make a trade off in terms of impact relative to our ability to generate an appropriate risk-adjusted return,” Carlisle said.
She indicated that the pension scheme may have been “too aspirational” in the past, meaning USS will “have to be a bit more realistic about achieving real-world outcomes over the long term”.
USS does not take exclusionary positions for any legal business except tobacco and thermal coal, Carlisle explained. Instead, it would “very much” push for any oil and gas firm to decarbonise. “The whole economy must transition,” she said. “We’ve got to grab difficult sectors with both hands, not leave them behind.”
This article was updated on 20 March 2025 to clarify that USS has exclusion policies for thermal coal and tobacco.
