UK’s largest pension scheme charts pathway to net-zero

The Government-backed National Employment Savings Trust (Nest) scheme is set to begin divesting from fossil fuel projects immediately, as part of a new roadmap designed to ensure its operations are aligned with the UK’s net-zero target.

In a move that climate campaigners have described as a “landmark” after months of action directed at the finance sector, Nest has pledged to remove thermal coal from its portfolio by 2025, along with oil sands Arctic drilling for natural gas and oil – both considered among the most aggressive fossil fuel extraction processes.

Any large business that derives at least 15% of its turnover from these fossil fuels will be excluded under the new rules, meaning that Nest will divest from mining giants as well as energy firms. The scheme notably lists BHP within its share holdings and has agreed to sell its final holdings by the start of next week.

However, BHP reportedly refused to describe its new policy as a full divestment programme. It will continue to invest in energy firms extracting oil and gas using traditional methods, providing that they can prove they are transitioning their business models in line with the Paris Agreement. It is believed that just one in ten energy majors are currently working towards 1.5C-alignment.

Nest anticipates that divesting within these parameters will free up £5.5bn, which it will then funnel into “climate-aware” investments. Projects and businesses set to be backed include renewable energy generation infrastructure and flexible energy technologies, which Nest sees playing a key role in the UK’s economic recovery from Covid-19.

The scheme has relatively little money under management (£12.2bn), but is the UK’s largest pension scheme in membership, with nine million members. It is also predicted to grow rapidly in the coming decades.

Nest’s chief investment officer Mike Fawcett said that the Covid-19 recovery, compounded by the Government’s decision to legislate for net-zero last year, poses “a unique opportunity to support sustainable growth and the transition to a low-carbon economy”.

“Just like coronavirus, climate change poses serious risks to both our savers and their investments,” Fawcett said. “It has the potential to cause catastrophic damage and completely disrupt our way of life. No one wants to save throughout their life to retire into a world devastated by climate change.”

A recent YouGov survey of more than 4,400 Brits found that 72% do not know whether their pension is invested in line with their values.

Piling on the pressure

Nest, like many pension funds and other financial organisations, has been facing mounting calls to divest from fossil fuels in recent months.

Following months of demonstrations from green groups like Extinction Rebellion and charities like ShareAction, a campaign was recently launched to get the £3trn managed by the UK’s pensions sector invested in a net-zero-compatible manner. Called Make My Money Matter and spearheaded by Comic Relief co-founder Richard Curtis, it is being backed by the likes of the Environment Agency Pension Fund, Oxfam and WWF.

Nest’s own polling of its members found that 65% wanted their pension invested in a way that assisted climate change mitigation and adaptation. Just 4% strongly disagreed, with the majority of this cohort concerned about the risk associated with ‘green’ investment.

But these results – and the actions Nest is now taking – stand in contrast to the views of Pension Minister Guy Opperman. In a comment piece penned for The Telegraph earlier this month, Opperman said he “strongly believes” that divestment is the wrong approach. Instead, he wants to see Government-backed pensions funds work with businesses in their holdings to improve their climate plans.

“Holding such [high-carbon] assets places trustees in an influential position to nudge, cajole or vote firms towards lower-carbon business practices,” he wrote.

“The tactic of simply selling them to others without the same environmental concerns is counterproductive.”

Sarah George