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Pension fund survey finds progress but also caution on net zero aims

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The majority of pension funds have either embedded or are in the process of embedding climate change goals into their investment portfolios, according to the latest DWS-sponsored survey of global pension funds from CREATE-Research.

However, the report says that a bigger push is required if pension funds are to meet their net zero ambitions, with 60 per cent of those surveyed believing their net zero aims will not be met under current conditions. This suggests more bespoke solutions and the focus on stewardship could be more important than ever.

The survey of 50 large pension funds based in North America, Europe and Australasia, which collectively manage EUR3.3 trillion in assets (as at 31, December 2021), found 16 per cent of respondents have fully embedded climate change goals into their investment portfolios. Forty-two per cent are in the process of implementation, with 22 per cent close to decision-making and 20 per cent at the awareness-raising stage. Net zero strategies are therefore being pursued by almost three in five respondents.

“Although many pension funds are being highly proactive when it comes to climate change, it is clear that the pensions sector is still in the foothills of net zero action,” says Amin Rajan, Chief Executive of CREATE-Research.

Fifty-six per cent of pension funds surveyed view passive investments as a permanent feature of their climate portfolio, while the same number, 56 per cent, expect to the use Paris-aligned indices “on a notable scale”. Forty-two percent of pension funds have adopted or are adopting climate investing into their passive portfolios.

The survey also found that 80 per cent of pension fund participants use stewardship as the principal vehicle of climate investing, with 78 per cent engaging in proxy voting and shareholder resolutions.

The survey finds that in passive funds only 28 per cent of respondents are still in the ‘awareness raising’ phase of implementing climate investments, down from 43 per cent in the 2020 survey. Twenty-four per cent of respondents now classify themselves as being in the ‘mature’ phase of implementation, up from 21 per cent in 2020. More pension funds are therefore embracing sustainable index investments.

“We are delighted to once again sponsor this important survey from CREATE-Research. The survey shows that more pension funds are moving along the path to embracing sustainable investing, including the latest ESG index products. But more work clearly needs to be done, by institutional investors and investment solution providers, if we are to reach net zero,” says Simon Klein, Global Head of Passive Sales at DWS.

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