UK pension funds investment is falling short of what’s needed to meet the country’s net zero targets, according to Ian Brown, head of banking and investments at the National Wealth Fund (NWF). Brown warns that pension funds are playing it too safe, prioritising established energy projects over new infrastructure developments.
Why Pension Funds Must Invest More in Green Projects
Brown argues that pension funds are willing to invest in large-scale transition funds, which support wind and solar energy, but only after projects are fully operational. He stresses the need for greater financial backing during the construction phase to help build the infrastructure necessary for the UK’s energy transition.
“We need to actually build this stuff,” Brown stated. “We require around £30bn to £50bn annually to fund emerging clean energy technologies, but funds prefer safer assets that already generate revenue.”
Government Push for Greater Investment
The UK government is urging pension funds to take a more active role in supporting green infrastructure. As part of its economic recovery plan, it is consolidating £1.3 trillion in pension assets to create “megafunds” that could unlock up to £80bn in new investment.
However, pension funds have traditionally steered clear of risky projects, particularly those still in development. Many defined benefit (DB) pension schemes—which make up 80% of UK pension assets—have been closed to new members, limiting their ability to invest in long-term, high-risk ventures.
Chris Hayes, economics director at Common Wealth think-tank, argues that pension funds should not be blamed for the lack of infrastructure investment. “Their primary duty is to secure retiree incomes, not to compensate for decades of underfunding in public infrastructure,” he said.
The Scale of Investment Needed
To meet its legally binding net zero carbon emissions goal by 2050, the UK must invest an estimated £26bn per year in low-carbon technologies and infrastructure, according to the Climate Change Committee.
Before the election, the Labour Party had promised to invest £28bn a year in a Green Prosperity Plan but later scaled back these commitments. Instead, the government has expanded the National Wealth Fund, increasing its budget from £22bn to £28bn to fund infrastructure projects.
A parliamentary report previously criticised the UK Infrastructure Bank (UKIB), the predecessor of the NWF, for focusing on projects that were already financially backed rather than taking direct stakes in new infrastructure. The House of Commons Public Accounts Committee accused the UKIB of “reinventing the wheel” rather than filling critical funding gaps.
What Areas Need Investment?
Brown highlighted several sectors that urgently need financial support, including:
- Floating offshore wind farms
- Battery storage technology
- Carbon capture and storage
He also stressed the importance of government-led reforms to speed up planning approvals and improve connections to the National Grid, which have caused delays and cancellations of numerous projects.
Will Pension Funds Change Their Approach?
The call for increased investment comes amid growing pressure on pension fund managers to maximise returns while also supporting economic growth. Pensions Minister Torsten Bell recently urged a review of the £2.4tn retirement savings industry, emphasising the need for a long-term investment strategy to boost the economy.
While some pension funds remain hesitant, the growing demand for green infrastructure and the government’s push for reform could drive a shift towards higher-risk, higher-reward investments in the coming years.
