Advocates Call for Inclusion of Climate Change Measures in UK Pensions Legislation
The UK government's Pension Schemes Bill, reintroduced to Parliament on 7th July 2025, focuses on consolidating small pension pots into large multi-employer "megafunds" to improve efficiency and investment outcomes for retirees. The Bill also allows Defined Benefit schemes to release £160 billion in surplus funds for economic growth and business investment. However, the Bill falls short of mandating specific proportions for pension funds to invest in UK green assets, sparking debate and calls for amendments.
The Bill mandates that all 86 Local Government Pension Scheme funds pool their assets into centralized asset pool companies, which will focus on investments in local infrastructure and clean energy projects. Ministers are empowered to set rules for these investment vehicles, though the extent of any green investment mandates is yet to be determined after further consultation.
Campaigners, representing more than 30 organizations, have urged the government to amend the legislation to explicitly incorporate environmentally sustainable growth as a priority, emphasizing climate change considerations in pension fund investment decisions. They argue that mandating investments in UK assets, especially in green infrastructure and clean energy, could unlock significant capital for domestic economic growth, innovation, and the transition to net-zero emissions.
However, opponents argue that mandating large allocations to UK assets could reduce diversification, increasing exposure to country-specific risks and potentially harming returns. They also point out that pension funds typically benefit from global diversification, and over-concentration in UK assets might lead to missed opportunities internationally, including in emerging green technologies abroad.
The coalition of organizations, including think tanks like the New Economics Foundation and Positive Money, major trade unions, and others, are calling for an inclusive consultation process. They argue that the reforms present a key opportunity to align the UK pensions system with the transition to a low-carbon economy. The Finance Innovation Lab has proposed issuing green bonds through the National Wealth Fund to help mobilize institutional investment.
Catherine Howarth, CEO of ShareAction, warns that the legislation lacks ambition and is a missed opportunity to clarify the fiduciary duty of pension schemes. Jesse Griffiths, CEO of the Finance Innovation Lab, states that the Bill's failure to link pensions reform to greening the economy is startling, given the threat of climate change to retirement security for pension savers.
The debate continues, with the Pensions Bill undergoing committee and report stages, during which amendments may be proposed. The coalition hopes the government can be persuaded to amend the Pensions Bill to make the obvious links between green investment, sustainable growth, clean energy, and tackling climate change.
- The coalition of organizations, including think tanks and major trade unions, has urged the government to amend the Pensions Bill to explicitly prioritize environmentally sustainable growth. They advocate for incorporating climate change considerations in pension fund investment decisions and invest in UK green assets, such as clean energy projects.
- Catherine Howarth, CEO of ShareAction, emphasizes that the Pensions Bill lacks ambition and presents a missed opportunity to clarify the fiduciary duty of pension schemes by linking them to greening the economy, highlighting the threat of climate change to retirement security for pension savers.
