Scottish Widows urges pensions industry to 'urgently' close £2.17trn 'green gap' amid net-zero plans

Scottish Widows has announced plans to target net zero across its entire portfolio of investments by 2050, calling for an industry-wide commitment to net-zero investments in order to "urgently" close the 'green gap'.

As part of the initiative, the company will aim to halve the carbon footprint of its £170bn investments by 2030, and will be investing billions in climate solutions, such as renewable energy, low carbon buildings, and energy efficiency technology, by 2025.

A target for the company’s overall investment in climate solutions by 2025 and the carbon footprint of existing investments is expected to be published later this year.

Scottish Widows emphasised that the plans will nearly double the current £177bn in meaningful commitments from the pensions industry, in line with the goals of the Paris Agreement, up to £347bn.

Indeed, Smart Pension recently announced plans to achieve net zero "well ahead" of 2050, with similar commitments made by the National Grid UK Pension Scheme, Hymans Robertson, Nest, and Aegon UK, whilst Cushon has announced the launch of a 'world first' Net Zero Now pension.

However, Scottish Widows stressed that a “giant” £2.17trn “green gap” remains as the "overwhelming majority" of the country’s pension providers and funds have yet to outline plans to move their investments to net zero, representing around 85 per cent of pension savings.

As such, it has called on the rest of the industry to “urgently close the ‘green gap’” and commit to net zero with a "clear path" and objectives ahead of the COP26 conference expected to take place later this year.

It also urged providers to shift from the current "piecemeal approach", to a wholesale net zero investment strategy with clearer shorter-and-medium-term milestones that are understood by the public, customers, and policymakers alike.

Commenting on the proposals, Scottish Widows head of pension investments, Maria Nazarova Doyle, stated: “Our first responsibility is always to our customers and ensuring we are looking after their investments for the long-term.

"Moving to net zero will protect savings against climate-related risks and uncertainty and offer longer-term sustainable growth by accessing low carbon transition opportunities.

“To get there we must set shorter-term targets. Carbon emissions need to halve between now and 2030 or we won’t stand a chance of meeting the longer-term net zero goal.

“To do the job properly across all our products and investments, we’ll use our influence through stewardship activity to drive the transition to a low-carbon future in the real economy, while proactively investing in climate change solutions.

"A company of our scale cannot rely on mass carbon offsetting schemes to provide a false sense of security, or extensive exclusion lists to get results."

She emphasised that the journey to net zero will not be easy, but that the company is "up for the challenge", stressing that action that drives change in the economy is the "only way" to achieve its net zero goals.

She added: “The pensions industry holds trillions of pounds worth of investments and can play a game changing role in supporting the global economy’s transition to a low carbon future, while earning sustainable returns for pension savers.

“We are making steady progress as an industry, but it’s not fast enough. The reality is we still have a very long way to go to close the green gap to net zero.

“To help prompt the shift to a low carbon economy, others within our sector must also make meaningful, large‐scale net zero commitments that include a dramatic reduction in emissions, if we were to have a chance to get to Net Zero by 2050.”

Commenting on the proposals, Pensions Minister, Guy Opperman, said: “I applaud Scottish Widows for their ambitious net zero commitments, a first amongst insurers.

"It is particularly encouraging to see these targets applied across the company’s entire investment portfolio, because, too often, net-zero pledges have only applied to certain products, with the worst examples cynically designed to increase sales of net zero products to some customers, whilst continuing to offload climate damaging funds to others.”

Energy and clean growth minister, Anne-Marie Trevelyan, added: “Eliminating the UK’s contribution to carbon emissions requires urgent action across society and the whole economy.

“Scottish Widow’s fantastic commitment will help create meaningful, large-scale change across the financial sector, positioning the UK as the global centre for green finance while protecting customers and the environment from climate change.”

ShareAction chief executive, Catherine Howarth, also highlighted the commitment to halving portfolio emissions by 2030 as "especially welcome".

She added: “Kudos to Scottish Widows for their leadership in protecting pension assets, whilst also protecting the environment their customers and clients will retire into.

"ShareAction hopes to see many more big players in the UK’s pension sector step up in this way by the time of the Glasgow‐hosted COP26 summit."

The plans have also been welcomed by Make My Money Matter founder, Richard Curtis, who highlighted the current time as a "tipping point" in the pensions industry's fight against climate change.

"This ambitious commitment from Scottish Widows showed what we’ve long known – that our pensions can be a hidden superpower in the battle to build a better world," he stated.

“Now we’ve reached this crucial stage, it is critical the rest of the industry follows suit.

“That’s why we echo Scottish Widow’s call for all providers to step up and close the two trillion green pension gap.

"With net zero commitments secured from Aviva, Nest, Scottish Widows and more – the movement for pensions to be proud of grows stronger every day. This is the tipping point we’ve been waiting for; inaction is no longer an option.”

The proposals follow the launch of an inquiry into "responsible investment for a just transition" to a net zero economy by the All Party Parliamentary Group for Local Authority Pension Funds.

They also comes amid a warning from The Pensions Regulator that defined contribution schemes should be giving greater attention to issues around climate change, after finding that 21 per cent of schemes felt it was not relevant to their scheme.

In addition to this, the government recently confirmed that larger pension schemes will face new climate risk governance and reporting requirements, receiving broad support from the pensions industry.

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