UK pension funds and insurers could unlock up to £119bn (€138bn) for climate transition investment by modestly increasing allocations to emerging markets and developing economies (EMDEs), according to a new report.
The report, Baku to Belém and beyond: Strengthening the UK investment landscape to support climate transitions in EMDEs, published by the EMDE Investor Taskforce, found that UK institutional investors allocate on average 4.2% of portfolios to EMDEs, with only 0.2% invested in private markets.
It said relatively small changes in asset allocation could direct tens of billions of pounds from the UK’s £6.2trn pension and insurance sector towards climate transition and sustainable development opportunities.
Raising private market allocations to EMDEs from 0.2% to 2% of assets under management could increase investment from about £2bn to £30bn among schemes most likely to invest, the report said.
In addition, directing 5–10% of future pension contributions to EMDE assets could generate between £27bn and £53bn over the next decade. Increasing overall EMDE exposure to 8% of portfolios could lift total allocations to around £119bn, from roughly £60bn today.
The EMDE Investor Taskforce, launched last year, is an industry initiative convened by HM Treasury and the Foreign, Commonwealth and Development Office. It is co-chaired by Ninety One and supported by the Institutional Investors Group on Climate Change (IIGCC), with the aim of mobilising private capital for climate and sustainability investments in emerging markets.
Participants include the Church of England Pensions Board (CEPB), NEST and The People’s Pension, alongside organisations such as Aviva Investors, British International Investment, HSBC, Legal & General, Lloyds, Phoenix Group, the Private Infrastructure Development Group and S&P Global Ratings.
The report comes as governments and investors seek to mobilise the $1.3trn in annual external climate finance that emerging markets and developing economies are expected to require by 2035 under the Baku to Belém Roadmap.
Climate risk
John Ball, chief executive officer of CEPB, said increasing investment in emerging markets could generate both financial and societal benefits.
“Many emerging markets find themselves on the frontline of climate risk but only see a fraction of the necessary investment,” he noted.
Hendrik du Toit, founder and CEO of Ninety One, said: “The constraint on EMDE climate finance is not capital, but alignment,” he said, adding that stronger policy signals and market structures could help the UK mobilise investment at scale while reinforcing its position as a global centre for sustainable finance.
“The constraint on EMDE climate finance is not capital, but alignment”
Hendrik du Toit, founder and CEO of Ninety One
The report argues that higher EMDE allocations need not conflict with efforts to boost domestic investment. Rising pension contributions mean pension funds have the capacity to support both UK productive finance and international climate transition opportunities.
However, the Taskforce said several barriers continue to limit EMDE investment. Asset owners cited governance requirements, fee caps, mixed policy signals, limited in-house capacity and persistent perceptions of higher risk.
To address these constraints, the report calls for clearer government guidance for investors, improved data on EMDE investment performance, and stronger collaboration with multilateral development banks and development finance institutions.
It also recommends expanding blended-finance structures and risk-mitigation tools, including guarantees, insurance and foreign-exchange hedging, to improve the risk-return profile of EMDE investments.
In addition, the report highlights the need for better market data, scalable investment vehicles and stronger project pipelines to help institutional investors allocate capital at scale.
