Nest has adopted a new investment policy with the aim of being ‘net zero’ in terms of carbon emissions by 2050.
The UK’s largest master trust provider says this policy should help address longer term climate change issues, as well as supporting a ‘green recovery’ from the economic problems caused by the Covid pandemic.
To help achieve this Nest is making a series of immediate commitments. These include moving £5.5bn of shares into climate aware strategies. This represents 45 per cent of Nest’s entire portfolio. Nest says this will reduce its carbon footprint, and is the equivalent to taking 200,000 cars off the road.
Nest, which has more than 9m members, will also begin divesting from companies involved in thermal coal, oil sands and arctic drilling and be completely divested by 2025 at the latest, unless they have a clear plan to phase out all related activity by 2030.
The company is also investing a greater proportion of its funds directly in green infrastructure. This builds on the £100 million Nest has already invested in renewable projects across Europe.
Nest says it will continue to actively pressure companies to align with the Paris goals and divest from companies that show little progress following sustained engagement. It will also commit its fund managers to making progress against set benchmarks, including analysing how Nest can halve its emissions by 2030.
Nest’s chief investment officer Mark Fawcett says this announcement sends a clear message on the seriousness Nest places on tackling climate change, particularly following the economic impact of coronavirus.
He says: “Just like coronavirus, climate change poses serious risks to both our savers and their investments. 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.
“As the world’s economy slowly recovers from coronavirus, we want to ensure this recovery is a green one. We have a unique opportunity to support sustainable growth and transition towards a low-carbon economy.
“We believe our new policy sets out a clear vision of where we’re heading. We’ll now work on taking the necessary steps to become net-zero, using our close partnerships with fund managers to amplify our impact and coordinate activities towards meeting the Paris Agreement goals.
“Not only is this the right thing to do, it’s also what our savers want and expect from us. How can we offer them the prospect of a better retirement if we ignore the world they’ll be retiring into?”
This announcement comes as Nest released research showing that a signifiant proportion of the public expect pension funds to be taking these measures.
In a survey of pension savers, four out of five adults (79 per cent) said they thought it was important the economic recovery from coronavirus should take climate change into account.
A total of 65 per cent of those surveyed said they thought their pension should be invested in a way that reduces the impact of climate change. Just 4 per cent strongly disagree.
In addition over half of adults (57 per cent) said they were worried about the impact of climate change on their lives, more than the proportion who are worried about the personal financial impact of coronavirus (51 per cent).
While most pension savers agree that their pension should be used to tackle climate change when asked, only 1 per cent have made a change in the last year in the way their pension was invested.
Many are put off checking if their pension is invested responsibly, for a variety of reasons: 15 per cent of savers said it was too complicated or difficult to know how to do, while some (17 per cent) didn’t know they could change funds. A quarter (25 per cent) assumed their money was already being invested responsibly. There may also be a big mismatch in pension savers’ understanding of the role their pension could play in tackling climate change, with nearly two fifths (38 per cent) not knowing their pensions are invested, at least partially, in stocks and shares.
Nest says these survey results suggests pension schemes have a responsibility to put tackling climate change at the heart of their default strategies, rather than expecting consumers to make ‘green’ fund choices.
This move was welcomed by campaign group ShareAction. Their campaign manager, Lauren Peacock says: “We hope this will encourage other pension schemes to up their ambition.
“Nest’s policy acknowledges the impact of its investments on the planet and takes responsibility for them. By committing to engage with companies head on, all the while moving assets out of high carbon sectors, Nest is setting clear expectations for those most responsible for the climate emergency and demonstrating the power of pensions to move them along a more sustainable path.
“It is vital that engagement moves past disclosure and leads to meaningful change by companies if we are to curtail the climate crisis.”
Make My Money Matter chief executive Tony Burdon adds: “This is the first time a leading UK master trust, managing the pensions of over 9 million British people, will ensure that its entire investment portfolio is Net Zero by 2050, with an expectation of halving of emissions by 2030.
“We’re delighted by Nest’s leadership, but it begs it question, why Nest and not the rest? That’s why Make My Money Matter is urging all UK pension funds to match this ambition, and commit to Net Zero portfolios.”