New research suggests that pension funds take their climate targets more seriously than other financial institutions by doing more to implement them.
Analysis of nearly 600 pension funds based in OECD countries shows that, once they integrate climate into their targets and strategies, they’re better at introducing measures to help achieve their ambitions than banks and asset managers.
Fossil fuel exclusion targets, policy advocacy and climate risk management are cited as examples of such measures.
“They only score slightly lower on internal accountability, investment data disclosures and disclosing and committing to net-zero pathways without carbon offsets,” noted the Climate Policy Initiative, the think tank that authored the report.
The study covered 594 funds with a combined $22.5trn under management or ownership (AUM/O), representing roughly 78% of global pension assets.
It used data from 58 sources, including CDP, InfluenceMap, ShareAction and MSCI.
“OECD-based pension funds’ target setting accelerated from 2020 to 2024, but quality remained low,” it said.
“Showing broader progress, the share of pension funds […] that moved beyond planned targets rose from 9% (27 funds) in 2020 to 63% (209 funds) in 2024. Targets must now improve in quality; only 1% of entities by AUM/O (7 funds) had ‘advanced’ scores in 2024.”
The biggest improvements seen so far have been around pairing targets with detailed baselines and broadening out commitments beyond public equities portfolios, the research found.
Only a third of the pension funds assessed had a climate investment target, while more than 40% had fossil fuel exclusion or phase-out targets.
A number of funds were namechecked for driving best practice, including Dutch pension fund PME for tightening its manager selection process based on climate considerations, and The People’s Pension and AkademikerPension for terminating mandates when managers wavered on their climate commitments.
PFZW was praised for divesting from fossil fuels and withdrawing mandates, and the Pension Protection Fund for having expectations for managers.
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