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Sign up nowHow green is your pension?
A new report ranks the climate strategies of the UK’s 20 largest workplace pension providers
Our pension tends to be the biggest investment that we hold, with around £3 trillion in UK pensions in total. But do you know what yours is invested in?
A report by the independent research organisation Profundo in partnership with Make My Money Matter, a green pensions campaigning body, estimates that UK pension schemes invest an estimated £88bn in fossil fuel companies. That's £3,000 per member.
It claims that 85% of leading UK pension providers have ‘inadequate’ or ‘poor’ climate plans in place.
Make My Money Matter argues that, if invested differently, pension savings can make a big contribution to reaching the UK’s 2050 net zero goal.
Which? Money takes a closer look at the report’s findings.
How do providers compare?
The Climate Action Report from Make My Money Matter ranks the climate strategies of the UK’s 20 largest defined contribution (DC) workplace pension providers. These organisations collectively manage more than £500bn in assets and have more than 15 million active members.
Rather alarmingly, not one provider had a plan for reducing climate change rated ‘good’, eg a score of 7.5 or above. Just three of the 20 companies in the analysis – Aviva, Legal & General and Nest – were found to have ‘adequate’ plans in place.
Yet with respective scores out of 10 of just 5.4, 5.3 and 5.1, there’s still plenty of room for improvement. Thirteen providers, including household names such as Royal London, Prudential and Standard Life, were judged to have inadequate plans.
Mercer, Hargreaves Lansdown, The People’s Pension and SEI were the worst-performing providers. These organisations, which manage the pensions of more than 2 million UK savers, have ‘poor’ plans in place, scoring on average just one out of 10 for climate action.
Here's how the firms scored out of 10 on their climate change strategies:
| Rank | Company | Overall score (out of 10) |
|---|---|---|
| 1 | Aviva | 5.4 |
| 2 | Legal & General | 5.3 |
| 3 | Nest | 5.1 |
| 4= | Cushon | 4.6 |
| 4= | Scottish Widows | 4.6 |
| 6 | Fidelity International | 4.5 |
| 7 | Smart | 3.8 |
Where are pensions falling short?
To come up with the headline rankings, Make My Money Matter scored pension providers on several factors. These included measurement and disclosure of carbon footprint (eg the emissions of firms they’ve invested in), detailed target setting, investments in climate solutions, a phase-out of fossil fuels and plans to manage deforestation and land use.
Also ranked were the providers’ commitment to a pathway to limit global warming to 1.5°C above pre-industrial levels, and their tools to achieve this. This final criterion is about pension providers influencing companies they’re investing in – which may range from voting in AGMs to looking at a firm's divestment and exclusion policy.
The lowest average scores (out of 10) were for the phasing out of fossil fuels (1.3) and deforestation and land use (also 1.3). On policies related to coal, oil and gas, eight out of the 20 companies scored zero. All 20 providers were found to have poor or inadequate plans on deforestation and land use.
There were some positive findings. Scores for measurement and disclosure (5.1), commitment to 1.5°C pathway (4.8) and stewardship (4.8) were at least respectable.
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What could turn things around?
Make My Money Matter has proposed a series of changes to help pension companies drive positive change.
Doing more to limit the global average temperature rise to 1.5°C is a key requirement. It calls for more explicit short- and medium-term emission reductions targets covering all assets managed by pension firms – not just default workplace pension schemes. Carbon offsets (such as planting trees) should only be used where there is no alternative.
Pension providers are encouraged to step up their investments in climate solutions, such as renewable energy, sustainable agriculture and forestry and energy efficiency. Providers should target investing at least 2% of assets in climate solutions.
The end goal should be the phasing out of fossil fuel assets, particularly those involved in coal and fossil fuel expansion. This includes not making new investments in companies involved in oil and gas exploration. Where pensions invest in firms that produce fossil fuels, these operations are required to have credible climate action plans that will limit global temperature rises to 1.5°C. Providers also need to start to tackle deforestation.
What are providers changing?
There were some examples where providers are making progress and implementing more ambitious policies.
Smart Pensions is aiming to meet a target date of 2040 (rather than 2050) to achieve net zero emissions. In terms of investment in climate solutions, Aegon has committed to a low-carbon transition by investing £500m in climate mitigation or adaptation solutions by 2026.
Only three companies – Nest, Cushon and Smart Pensions – have policies on excluding companies involved in new oil or gas exploration. Fidelity and Legal & General stand out as having broad requirements for investing in firms and commodities to limit deforestation.
What the lowest-ranked providers say
We asked for a response from companies that got the lowest overall score in the analysis.
A spokesperson from Mercer told us: 'As a global company, Mercer participates in a number of surveys throughout the year, though we do not respond to all surveys received. Mercer is a business of Marsh McLennan (MMC) and its ESG commitments and ESG Report are publicly available online, along with Mercer’s sustainable investment policy and TCFD report.'
Hargreaves Lansdown said: 'The Make My Money Matter report considers the top 20 defined contribution pension schemes across the UK, but its comparisons are based on firm-level commitments and policies as opposed to the specific characteristics of the pension default arrangements themselves. For master trust schemes, we think this sort of analysis is appropriate given the focus of these schemes on the default arrangements and potentially a small number of other investment options managed in-house.
'However, Hargreaves Lansdown Sipp clients have access to 14,000 different investment options and can choose those which suit their views and objectives, options not available to the majority of other workplace pensions considered in this report.'
A spokesperson for The People’s Pension said: 'The table and report published by Make My Money Matter in February is now out of date due to significant changes we worked on over the past year. Since these figures were published, we announced the move of £15 billion of our members’ assets – 70% of our main fund – into climate-aware investment strategies. This was the biggest single move of its kind by a UK master trust and we are continuing to work to increase this.
'The People’s Pension has been committed to aligning the portfolio with the goal of keeping warming below 1.5°C compared to pre-industrial levels since 2019 and our new Responsible Investment policy, sets out exactly what these targets are in addition to being more explicit about our stewardship objectives. We are confident that if Make My Money Matter were to do its survey again now, the picture would look very different.'
SEI didn't reply to our request for a comment.
What can you do?
If you’re an employee who’s signed up to a workplace defined contribution pension scheme, your employer will usually select the provider. Often you can make additional voluntary contributions into a more environmentally focused fund.
In some cases, you can get your employer’s contributions paid into a self-invested personal pension (Sipp). You can not only pick a pension provider with better scores but also select the funds you want.
If that’s not an option, you can combine old workplace pensions under a greener provider. This can make it easier to manage your pensions and perhaps reduce charges, but it can be a lengthy process. Check you won’t lose valuable perks of older schemes, such as guaranteed annuity rates.
Trust-based DC pensions operated by trustees are similar to final salary schemes in that the board of trustees decides on the fund range. In both cases, you may need to persuade the trust board to change strategy.
