XPS Group has published new analysis on a sample of 48 UK pension schemes’ Task Force on Climate-related Financial Disclosure (TCFD) reports, covering c.£400bn AUM, reviewing their approach to climate change risk management and reporting. 2024 was the third year that mandatory TCFD framework reporting has applied to pension schemes, and is aimed at improving reporting and driving action to address climate risks.
2025 so far has seen various governments, companies and asset managers pull back on ESG and climate change targets. This direction of travel makes it more important than ever that pension schemes are reviewing their exposure to these risk issues. Inaction in the short term increases the risk of financial disruption from extreme physical weather events, as well as regulatory disruption when the low-carbon transition does eventually accelerate.
The key findings from the report include:
• Three quarters of schemes have adopted net zero targets (up from 60% last year). Of these, 75% have indicated clear plans aligned to best practice, suggesting that both uptake and credibility has improved amongst schemes
• 69% have made asset allocation changes to address climate risks, a significant increase on previous years, suggesting that climate risk analysis is driving changing investment decisions
• 42% of all schemes reviewed indicate at least some direct investment in climate solutions. XPS expects this to grow as the opportunities and availability of low carbon solutions increase over time
• The average Implied Temperature Rise of the schemes reported was 2.4°C. This is lower than the average reported last year (2.80C) and the latest scientific estimates of global progress (2.7°C), but above the Paris Agreement goal of keeping global warming at least below 2°C, suggesting schemes are holding assets at risk of value deterioration as the transition accelerates.
Alex Quant, Head of ESG Research said: "These findings highlight the significant strides pension schemes are making towards Net Zero targets. It’s good to see more pension schemes having clear, actionable plans focussing on forward-looking alignment to the climate transition. Given the recent significant setbacks for the low carbon transition at the Government and industry level, we urge trustees to take the time to fully understand the risks and opportunities they are exposed to”.
XPS Group Full Report on How Pension Schemes have developed their Net Zero strategies
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