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UK university pension fund proposes net zero investment strategy

The UK universities’ pension scheme has pledged to pursue an investment strategy consistent with net zero carbon emissions by 2050, but its plan has sparked criticism from academics seeking a rapid exit from fossil fuels.

The £80bn Universities Superannuation Scheme, the UK’s largest private pension fund by assets, has begun the process of developing a comprehensive net zero strategy after last year promising not to make investments in companies producing thermal coal that is used in electricity generation.

The USS would not make “wholesale divestments” from fossil-fuel producers but would work with other pension funds to encourage oil and gas companies to make material cuts to their carbon emissions, said Simon Pilcher, chief executive of the pension scheme’s investment management arm.

New rules are due to be announced this year by the government which will require pension schemes to evaluate the risks posed by climate change as part of Britain’s plan for net zero emissions by 2050.

The USS has begun establishing interim targets towards net zero and intends to evaluate its carbon footprint for new reporting standards required by global regulators under their Task Force on Climate-related Financial Disclosures.

“This is about taking the logical next step as responsible investors,” said Pilcher. “We recognise the transition . . . will not be easy and we have work to do to make our net zero ambition a reality by 2050 or before.”

The USS, which has more than 450,000 members in its pension scheme, has already committed £1bn of investment in wind energy. Pilcher said the USS had also allocated £300m to building new solar energy projects. 

Anne-Marie Trevelyan, the UK energy minister, said she hoped that other investment groups would follow USS by “using their position to shape the green economy and providing climate security for generations to come”.

The House of Commons work and pensions select committee last week launched an inquiry into the government’s approach to pension stewardship, which will also examine measures to encourage retirement schemes to make climate-friendly investment decisions.

“Unless pension schemes are wise to the risks of climate change and the need to adapt investments, there will be a knock-on effect on people’s pension pots,” said Stephen Timms, the Labour MP who chairs the committee.

Ethics for USS, a coalition of academics which includes Sir Brian Hoskins, chair of the Grantham institute for climate change and the environment at Imperial College London, said it was “extremely concerned” that the USS had not explained how it would meet a net zero goal that was 30 years away.

A clear timetable of short-, medium- and long-term targets should be established, added Ethics for USS.

“USS members want their pension contributions invested sustainably,” said Paul Kinnersley, emeritus professor at Cardiff university and a member of Ethics for USS.

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“USS needs to explain how it will support real cuts in carbon emissions, rather than a nebulous net zero target, which implies that it will continue to invest in fossil-fuel companies.”

Ethics for USS also wants the pension scheme to step up engagement with fossil-fuel producers and to clarify whether it will support shareholder resolutions proposed by Follow This, a climate activist group, at companies’ annual meetings.

These resolutions ask oil companies to set targets on carbon emissions that are consistent with the UN climate agreement finalised in Paris in 2016.

Pilcher said the USS would not support all such resolutions. “There will be cases where we will not support adversarial shareholder resolutions but that does not imply that USS has gone soft on the need for reductions in carbon emissions,” he added.

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