The Universities Superannuation Scheme (USS) has expressed concern over the growing disconnect between the emissions reductions seen in its portfolio and increasing real-world greenhouse gas emissions.
According to its 2025 Task Force on Climate-related Financial Disclosures (TCFD) report published yesterday, the pension fund has made significant progress in reducing the emissions of its portfolio, having reported a 51% decline between 2019 and 2024 for its non-sovereign defined benefit (DB) assets.
However, the scheme has said it is cautious about interpreting this progress as a true indicator of climate progress more broadly.
“The reality is that the outlook for real-world decarbonisation and achieving a rapid and orderly transition looks bleaker than when we published our first TCFD Report in 2018,” said Kate Barker, chair of the trustee board.
“As a long-term investor, it is in our members’ interests to do what we can to reduce climate risk by acting to mitigate the rise in global temperatures. Achieving real-world climate outcomes that will benefit the scheme will be our focus in future,” the report stated.
In the report, USS said that it treats the rapid pace of portfolio emissions reduction “with caution” because these improvements have not been reflected in real-world outcomes.
The report added that while businesses are increasingly integrating climate considerations into their strategies, global government action has been slower and less coordinated, thereby leading to a bleak outlook for achieving a quick and orderly climate transition.
According to USS, its key concern centres on the fact that decarbonisation within an investment portfolio, driven by asset reallocation or rising market values, does not necessarily equate to real reductions in emissions from underlying businesses or sectors.
The report comes at a time when investors are being urged to put greater emphasis on physical climate risk.
“There are concerns that the world is moving towards a scenario where global temperature rise is likely to be towards three degrees of warming; and so, the need to lower global emissions, limit temperature overshoot and put the global economy on a sustainable low-carbon footing is more urgent than ever. In this less optimistic scenario, there would likely be lower returns and potentially a worse funding position for the scheme,” Barker added.
Increased AUM
USS’s annual report and accounts 2025, also published yesterday, showed an increase in assets under management to £76.8bn (€88bn) as at 31 March 2025 (£73.3bn defined benefit; £3.5bn defined contribution).
The value of the DB fund’s estimated surplus grew by £0.9bn in the year to £10.1bn, with the scheme now being 116% funded on a technical provision basis.
This is the second time the pension fund has formally reported a surplus. Last year, USS reported a surplus for the first time since 2008 after its 2023 actuarial valuation revealed a surplus of £7.4bn, which led to the pension fund reducing member contributions from 9.8% to 6.1% and employer contributions from 21.6% to 14.5% as of 1 January 2024.
According to the annual report, USS’s assets outperformed its DB liability proxy by 14.1% per annum over the five years to 31 March 2025.
USS said that its in-house investment team has delivered “significant cost advantage”. It said that the fund’s annual investment management costs were the equivalent of £86m a year, lower than the median global peer pension fund.
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