Barriers impact investment to climate solutions

Our report acknowledges that there is an appetite across the UK pension industry to scale up investment in climate solutions, but notes that many pension schemes are struggling to match their ambition with action. The report summarises the two key barriers inhibiting progress as: 

i) Demand for finance - scarcity of investible and scalable opportunities - for example, many climate solutions face high levels of bureaucracy in permission processes or tend to be heavily fragmented rendering them less amenable to scaling, while an absence of clear national transition plans also inhibits action. 

ii) Supply of financing - regulatory constraints on UK pension industry - for example, liquidity constraints and fee cap for Defined Contribution (DC) schemes limit the appeal of illiquid long-dated investments, which many climate solutions are. 

Overcoming barriers

Solutions to barriers

We have identified seven strategies for policymakers and regulators that could  unlock greater investment in climate solutions from the UK pension industry. We highlight four priority strategies in the short-term due to their high potential impact and relative ease of implementation:

To address demand for finance: 

• Developing a UK climate transition plan with sector-specific strategies and clear roadmaps
• Outlining a consistent planning and permitting regime to prioritise the go-to-market and scaling of climate solutions projects 

To address supply of financing:

• Provide clarity on considering climate impact as part of fiduciary duties
• Deliver matching adjustment reform (Solvency UK), with guardrails linked to productive/sustainable finance

Call to action

This report is intended to shine a light on the huge opportunity for our industry to scale up our investment in climate solutions in a way that delivers value to customers. In doing so, we hope to catalyse further debate, collaboration and innovation that is needed to make it happen. Ultimately, though, this report needs to translate into action. That is why were committed to working with stakeholders to deliver the priority actions outlined.