The head of climate and nature at Phoenix Group has told Responsible Investor he is “just not seeing opportunities” to invest in climate solutions as the pension and savings provider launches a call for policy actions in partnership with Make My Money Matter.

The pair have set out seven policy moves that they claim could unlock up to £1.2 trillion ($1.5 trillion; €1.4 trillion) in capital investment in climate solutions from the UK pensions industry – half of the country’s requirements to hit net zero.

These include setting an economy-wide national transition plan with sector-specific roadmaps, providing clarity on considering climate impact as part of fiduciary duties, risk-sharing, and considering initiatives to help scale opportunities.

The joint report, published today (Tuesday), says that under current conditions pension schemes will invest between £200 billion and £300 billion by 2035, just 15 percent of what is required to reach net zero.

While there is appetite in the industry for scaling up investment, the report warns that many pension investors are struggling to match ambition with action due to a range of regulatory and policy barriers.

Bruno Gardner, who heads up climate and nature at Phoenix, told Responsible Investor that the group was looking to put significant amounts of investment into climate solutions as part of its “aspiration” to invest £40 billion in productive and climate assets under the right conditions.

However, he said the group is “not seeing at the moment opportunities for us to invest in climate solutions in line with our aspirations in a way that delivers returns to our customers”.

“The pipeline of investable opportunities is just very small compared to what we know needs to be invested, and the regulatory constraints that limit our ability to invest in nonstandard illiquid assets mean that even when those opportunities emerge, we’re still constrained.”

One of the seven proposals is to accelerate existing consultations on regulatory changes, which would free up more money from UK pensions to invest in illiquids and “productive” finance, with the expectation that this cash could go to sustainable finance and climate solutions.

The report also suggested that the government could lift the cap on charges for defined contribution pensions for investments related to climate solutions.

Fiduciary clarification

One of the recommendations that aims to address barriers limiting the supply of finance to climate solutions is to clarify how considering climate impact forms part of fiduciary duties.

The UK government has committed to clarify fiduciary duty in its green finance strategy. However, Gardner said the focus of the report’s recommendation was for the Pensions Regulator to adjust its guidance so it is “very clear to everybody” how fiduciaries should weigh climate risk in their overall thinking.

“What we’re not saying is that that trustees should prioritise action on climate change at the expense of customer returns,” Gardner added. “The point we’re making is that there is a need for greater clarity on how people factor climate risk into that fiduciary duty, which is still centred on ensuring best returns for customers. But at the moment the inconsistent interpretation means that that’s not necessarily playing out in the way it should.”

Tony Burdon, CEO of Make My Money Matter, told RI that, while Phoenix Group has significant capacity and capability, many smaller schemes have much lower capability, supplemented by part-time trustees and a heavy reliance on investment consultants.

“That’s where there’s much less confidence in how to take action,” Burdon said. “It leads to a sort of heavy, lumpy cautiousness around what to do, and that’s misplaced.

“We need urgent clarity around managing climate risk and ensuring that trustees have the confidence that they can operate in the best interests of their members while tackling these really burning issues around the climate emergency.”