Europe’s Pension Funds Prioritize Climate Change

December 16, 2021 — London

A growing number of schemes are formally committing to net zero

For Europe’s retirement industry, climate change is the most important of the responsible investment topics, according to this month’s issue of The Cerulli Edge―Global Edition.

Nearly 70% of the respondents to an extensive survey conducted by Cerulli Associates already invest in renewable energy and around 59% invest in energy-efficient assets.

“Climate-related themes will remain the industry’s focal point in terms of responsible investing for at least the next 12 months, but we expect that some pension funds will start putting more emphasis on themes such as affordable housing, biodiversity, and sustainable forestry,” says Justina Deveikyte, director of European institutional research.

Cerulli’s research across seven European countries shows that an increasing number of pension funds in Europe are making formal commitments to net zero: roughly 40% of the pension funds have already done so and 20% plan to do so in the next 24 months.

By country, however, commitment varies. 23% of Italian respondents and 30% of U.K. respondents have committed to reaching net zero, whereas 50% of Dutch respondents have done so. In addition, more than half of the Dutch pension funds make investments that support the transition to a carbon-neutral economy.

Some 85% of the Dutch pension funds require asset managers to provide the carbon footprints of their portfolios. The proportion is lower in other countries in the region—around 50% in Italy and the U.K., for example. However, it will soon be a standard request across Europe.

Information on portfolios’ alignment to a two-degree scenario is the data point least demanded by the pension funds Cerulli surveyed. France is an exception, where roughly 40% of respondents require this information.

“Pension funds expect their asset managers to be serious about environmental, social, and governance (ESG). To illustrate its commitment, a manager could join industry schemes such as the Net Zero Asset Managers initiative or commit to report against the Task Force on Climate-Related Financial Disclosures' guidelines,” says Deveikyte.

Other Findings:

  • As responsible investing becomes more mainstream in Asia, institutional investors’ expectations of managers on sharing knowhow; technical aspects on carbon footprints; ESG datasets and tools; and disclosure standards will increase. To meet these expectations, managers need to build their ESG teams and investment capabilities.
  • In the U.S., Cerulli’s retail investor survey results show that there is an inverse correlation between age and expressed interest in sustainable investing, starting at a high of 75% of respondents under age 40, then dropping off among each progressive age cohort down to only 31% of respondents aged 70 and older.

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Note to editors

These findings and more are from The Cerulli Edge—Global Edition, December 2021 Issue.

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