New research conducted by the Climate Policy Initiative (CPI) has found that while positive strides have been made in European pension fund’s climate progress, a significant gap remains between commitment and action.
The CPI report – State of European pension funds’ net zero transition — was developed in conjunction with the launch of the group’s Net Zero Finance Tracker (NZFT) which tracks the climate progress of almost 1,000 financial institutions, including 342 pension funds, responsible for €92.5trn in total assets.
ABP, AP Pension, Alecta and Pensioenfonds Detailhandel are among the 342 pension funds being tracked by the CPI’s net zero benchmarking platform which has monitored financial institutions’ net zero progress since 2019.
“The interactive NZFT data tool can help to inform ambition, provide transparency and accountability, and celebrate the progress of pension funds on net zero. Its indicators across target-setting, implementation action, and real economy action help to identify success factors and point to areas where further attention is needed,” said CPI associate director Valerio Micale.
Key findings from both the report and NZFT include a need for significant improvement in direct clean energy investments.
Furthermore, the report stresses the need for transparency, regulatory leadership, and engagement with asset managers to drive real economic change.
Additional findings concluded that Nordic countries and the Netherlands are leading in the clean energy transition, while other regions lag.
“The impacts of such actions are still far from being realised at scale, with the levels of direct and indirectly enabled investment in clean energy supply still insufficient for a Paris-aligned world when compared with similar fossil-fuel energy investments, and at odds with the COP28 agreement on transitioning away from fossil fuels,” the CPI report stated.
Looking ahead
Given their sheer scale, pension funds have a critical role in enabling a net zero transition, and by acting now, can mitigate risk exposure to stranded assets, investment devaluation, and stakeholder concern over sustainability in the face of climate change, the CPI stated.
As such, the new tool will allow pension funds to benchmark their net zero performance against each other by measuring funds’ targets and their impacts on the real economy.
It is estimated that at least €5.5trn will be required globally in annual climate finance through 2050 to limit temperature increase and avoid the worst impacts of climate change, the CPI stated.
“In light of this, it is clear that public sector finance alone will not be sufficient to fill the funding gap we face. Private capital can and must play a critical role if we are to achieve our climate goals. For this reason, the implementation and impact of the financial sector’s climate commitments are of paramount importance and critical to the delivery of the Paris Agreement,” the group added.
The latest digital edition of IPE’s magazine is now available
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