Majority of schemes now planning net-zero pledge

Over half of schemes intend to commit to aligning portfolios to net zero soon

Jonathan Stapleton
clock • 4 min read
Majority of schemes now planning net-zero pledge

The majority of UK pension schemes have made a net-zero commitment or plan to put one in place soon, Aon research reveals.

The consultant said the UK results of its Global Perspectives on Responsible Investing survey showed that 19% of UK asset owners are already committed to aligning their portfolios to net zero by 2050 and a further 53% intend to do so soon.

The survey - which polled 155 investment professionals in the UK - also found that 84% of respondents engaged with responsible investment through ESG integration adding that nearly half (48%) have a responsible investing or ESG policy in place and are actively making changes to investments as a result.

Aon said climate change was the most pressing investment concern for the majority of respondents (68%), followed by socio-economic inequality (28%), cyber risks (26%) and biodiversity loss (26%).

The consultant said respondents representing defined contribution (DC) plans tended to have a broader range of concerns than those with defined benefit (DB) plans. It said one reason for this, is that DC activity is often driven by its members, who are increasingly aware of ESG issues and are more directly engaged than their DB peers.

Aon partner and UK co-head of responsible investment Tim Manuel said: "As the more-lasting impacts of the Covid-19 pandemic become clearer, and strains on the environment and society increase, the influence of responsible investing among UK institutional investors will continue to grow.

"Active awareness and appetite for change is visible globally and especially among UK scheme members, many of whom are calling for their investments to have strong ESG credentials. As new forms of volatility emerge, we expect these priorities to evolve and come into sharper focus."

Manuel continued: "While the desire to make a positive societal or environmental impact and achieving better alignment with stakeholders are key drivers for the adoption of ESG investing, the tide is being turned by the growing perception that responsible investment also leads to better risk-adjusted returns.

"The survey found that satisfaction with performance is consistently high, with 73% of those invested in responsible investments saying that they are either satisfied or very satisfied with their returns to date. Some of the perceived barriers to adoption have fallen, including the risk-return trade off, which in the past made investors sceptical about ESG investing. Enough time has now passed for those wanting to invest to see the return potential. Regardless of where the debate goes in the future, responsible investing now has a track record, performance is no longer hypothetical and investors say they are satisfied with performance and returns."

Barriers to adoption

The survey also showed that some barriers to adoption remain, notably the availability of reliable data. Aon said this is still a roadblock to implementation for 18% of UK schemes.

For responsible investment to become even more compelling, nearly half of respondents wanted to see better or more consistent data on ESG factors. Similarly, 37% wanted greater industry agreement around definitions.

Manuel added: "We see this barrier with our clients, which suggests that while reliable and consistent data can pose a challenge to making better decisions in many areas, the regulatory framework will be key to rapid progress and for the adoption of responsible investment strategies."

The survey's UK findings also show that a consensus is emerging among investors - approximately half say that adoption of responsible investment will be driven by climate concerns (49%) and policy action from regulatory bodies (46%).

Manuel continued: "We expect regulation to continue to act as a catalyst. The more investors engage with responsible investing, the more inclined they will be to adopt it and go further. It is really telling that nearly one in five UK pension schemes have already aligned their investment portfolios to reach net-zero emissions before 2050, and that another 53 per cent intend to do so in the future - and this is not currently a regulatory requirement in the UK.

"Though an increasingly positive view of responsible investment is evident throughout, the responses to our survey highlight that many investors remain at very different stages of the journey. This varying pace of adoption could pose some difficulties to the fund management industry, which will have to deliver to those different needs. With the wider acceptance and integration of responsible investing now a reality, fund managers will need to be better prepared to meet investors' wishes."

 

Aon's research comes after analysis from Make My Money Matter earlier this month found twenty of some of the largest UK pension schemes have yet to establish net-zero targets.

Analysis conducted by the ethical pensions campaign estimates found the schemes collectively have around £200bn in assets under management and represent some of the largest companies in the UK such as Boots, Ford, Shell, and Vodafone.

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