The majority of top workplace pension providers are severely lacking in their approach to tackling the climate crisis, according to new research.

A survey of the top 20 defined contribution workplace pension providers, conducted in late 2023 by sustainability research provider Profundo and the campaign group Make My Money Matter, assessed their publicly available climate documentation.

Between them, these providers manage more than £500 billion of the nearly £3 trillion in assets held in UK pension schemes, with more than 15 million active members combined. The significant amounts invested have a crucial role to play in combatting the climate crisis. 

The analysis focused on seven core indicators of tangible climate action: commitment to a pathway to 1.5°C, measurement and disclosure of carbon footprints, setting detailed targets, investing in climate solutions, phasing out fossil fuels, deforestation and land use, and portfolio stewardship instruments. 

The findings revealed that 17 (85%) of these providers have ‘inadequate’ or ‘poor’ plans in place – with only Aviva, Legal & General, and Nest deemed ‘adequate’.

Four providers – Hargreaves, SEI, The People’s Pension and Mercer, which manage a combined two million UK savers’ pensions – received just a score of just one out of 10 for climate action, the lowest possible ranking. 

Despite making a raft of commitments to actively engage with efforts to tackle climate change, many providers were found to be failing in multiple areas. In two strands in particular, companies were accused of making “woefully inadequate” progress. 

Eight of the 20 companies scored zero out of 10 on policies relating to oil, coal, and gas.

On deforestation and land use, all 20 of the UK’s leading companies have poor or inadequate plans in place. 

The research concluded that, in order to make meaningful progress in targets, funds need to: set ambitious goals, develop detailed targets (ensuring they cover emissions throughout the value chain of investee companies), phase out fossil fuels, tackle deforestation, invest in climate solutions, and strengthen their stewardship – including divestment and exclusion policies. 

Richard Curtis, co-founder of Make My Money Matter, said: "Climate leadership is not just important for the planet – it's popular too. But the fact that 17 of the UK’s top 20 providers have inadequate or poor climate plans tells you all you need to know about how seriously the industry is taking this issue.   

"The public will rightly be worried about these results and we hope this ranking acts as an urgent wake-up call for the pensions industry to up its game on climate change. In doing so, they can help protect the planet and provide savers with pensions they can be proud of.”

Jan Willem van Gelder, director of Profundo, added: “Given the disappointing results, I encourage UK pension providers to use the methodology of this study as a guide on what the public can expect of a robust climate action plan. Grand commitments to tackle climate change need to be followed by bold actions.”

Previous research by Make My Money Matter, published last June, found that an estimated £88 billion of pension savers’ money is invested in the fossil fuel industry – as much as 10 times the amount invested in FTSE 350 stocks involving clean energy. 

It also found that none of the top UK pension providers had set limitation on investing in firms which continue to pursue new oil and gas projects, with “only a handful” publicly voting against fossil fuel companies in the 2023 AGM season.

70% and 60% of those funds analysed listed Shell and BP respectively among their top holdings, while not listing any investments in renewable energy. 

In October, Friends of the Earth revealed that Local Government Pension Schemes (LGPSs) had double the investment in big polluters compared to the previous year, with a staggering £16 billion invested in the fossil fuel industry, with £8 billion in companies developing new oil and gas. 

Campaigners accused the investments of turning “public savings into fossil fuel playthings”.

A recent study conducted by the Economics of Energy Innovation and System Transition (EEIST) project, led out of the University of Exeter, also found that current models for a net zero transition used by pension funds assume that pre-existing climate-related trends will continue at a gradual pace, failing to account for climate tipping points. 

It was established that many funds still operate on models which predict that global warming of 2-4.3°C will have minimal impact on member portfolios, and rely on ‘flawed’ estimates of damages stemming from climate change. Some of these predict that, even with rising temperatures of up to 7°C, economic growth will continue.

However, the research indicates that the retirement savings of millions of people could be at risk by ignoring critical advice from scientists that warming on this scale would pose “an existential threat to human civilisation”.

Climate scientists have warned that the Earth is already on the verge of crossing five tipping points, natural thresholds which if breached pose “threats of magnitude never faced by humanity”, triggering domino effects which can lead to “mass displacement, political instability and financial collapse”. 

ClientEarth lawyer Catriona Glascott told Byline Times: “Climate action is not a ‘nice-to-have’ add-on for a pension scheme in the UK – it is a legal obligation for these funds’ trustees to manage financial risk, which includes the risks of climate change.  

“Pension schemes are required by law to assess the risks their portfolios are exposed to – and climate change poses risks to individual investments, to the portfolio as a whole and to the wider economic system in which the pension fund sits.  

“This report highlights that pension funds have a long way to go when it comes to turning their commitments into action – and they have to act sooner rather than later if they want to fulfil their legal duties.”