NEST considers freezing new investment into firms missing climate targets

The UK workplace pension scheme NEST has said it is considering freezing new investments into companies that are not meeting net-zero expectations.

As a large master trust, NEST receives significant assets in the form of member contributions every month, which are then invested. As such, if implemented, the mechanism would see the £40bn pension scheme continue to hold its existing investments, meaning it would retain voting rights.

The potential sanction was outlined by Katharina Lindmeier, senior responsible investment manager at NEST, in the latest DC Investment Forum research report - The Path to Net Zero - which explores various pension schemes’ transition efforts. 

In the report, Lindmeier said the real-world decarbonisation required to achieve net-zero was not materialising, adding that she is seeing some companies backtracking on their climate commitments.

“In the last two years, momentum has stalled, and in some cases, potentially reversed. We’re in a slightly difficult position as an industry,” said Lindmeier.

“We don’t necessarily want to divest; it isn’t going to change anything. But realistically, how many more levers do we have if we’ve already voted against shareholder resolutions? Companies are just not listening to us,” she added.

Speaking to IPE, a NEST spokesperson said that while the scheme was still considering an investment freeze, “NEST does not take such steps lightly and would prefer to work with companies to help them set actionable targets toward decarbonisation and the path to net zero”.

Pension scheme’s net-zero pathway

While many DC schemes are committed to reaching net zero by 2050, the report explored how the industry is trying to overcome the stumbling blocks it currently faces.

NOW: Pensions, which also featured in the report, spoke about its engagement methods.

In addition to joining initiatives like the Climate Action 100+, NOW: Pensions has adopted a new investment strategy to accelerate climate action, as reported by IPE earlier this month.

As part of the change in its investment strategy, the master trust’s global equity investments are managed directly by its in-house investment manager, Cardano.

This allows the master trust to have direct engagement and influence on its company holdings and can support these companies in their transitions to net zero or if there is no credible transition plan, choose to disinvest.

Overall, around 60% of NOW: Pensions’ Diversified Growth Fund is now invested in an equity strategy that seeks to support the transition, around 11% is in sustainable and green bonds and around 4% is in a corporate credit strategy that seeks to support the transition.

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