Majority of UK pension schemes have committed to net zero or plan to 'soon'

The majority of pension schemes in the UK have either committed to net zero by 2050 or plan to do so in the near future, Aon’s 2022 Global Perspectives on Responsible Investing survey has revealed.

The survey found that almost a fifth of UK asset owners (19 per cent) have committed to align their portfolios to net zero by 2050 and a further 53 per cent intended to do so soon.

The global survey polled 155 investment professionals in the UK and found that 84 per cent of respondents engaged with responsible investment through environmental, social and governance (ESG) integration.

The investigation also discovered that 48 per cent have responsible investing or ESG policy in place and are actively making changes to investments as a result.

Climate change was found to be an investment concern for the majority of respondents (68 per cent), followed by socio-economic factors (28 per cent), cyber risks (26 per cent) and biodiversity loss (26 per cent).

Respondents representing defined contribution (DC) plans tended to have a broader range of concerns than those with defined benefit (DB) plans, with one reason cited being DC activity is often driven by its members, who are increasingly aware of ESG issues and more directly engaged than their DB peers.

Aon partner and co-head of responsible investment in the UK, Tim Manuel, commented: “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.

“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 per cent 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.”

The survey also showed that some barriers to adoption remain, notable the availability of reliable data remaining a roadblock to implementation for 18 per cent of UK schemes.

For responsible investment to become more compelling, nearly half of respondents want to see better or more consistent data on ESG factors and, similarly, 37 per cent want greater industry agreement around definitions.

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