Naomi Clark, head of investment product management at USS Investment Management, says the energy transition is now a financial imperative for pension funds that must meet long‑term obligations.
Climate risk reshapes long‑term investing
The recent USS paper warns that climate change creates a growing financial risk that could undermine the stability needed to fund pensions for decades. Small shifts in temperature or sea level can trigger outsized effects on economies, and traditional models often underestimate these threats.
Clark argues that pension schemes, by definition long‑term investors, cannot treat the transition as a distant goal. “To accelerate the transition, we need bold and coordinated policy, which will help catalyse billions of pounds to be invested in renewables, grid infrastructure and emerging technologies,” she says.
Investors see the shift toward clean energy as a sizable opportunity. A rapid move to low‑carbon technologies could save the global economy trillions in energy costs by 2050 while enhancing energy security and creating jobs, the analysis notes.
Policy, not markets alone, will drive change
USS emphasizes that portfolio decarbonisation alone does not translate into lower real‑world emissions. Selling high‑emitting assets merely transfers ownership without guaranteeing reduced output. “If the goal is genuine decarbonisation, investors must remain engaged in helping high‑emitting sectors transition, not walk away from them,” the document adds.
Governments therefore play a decisive role. Clear, coherent policy frameworks can lower capital costs and unlock private investment at scale. In contrast, policy volatility and weak regulation raise costs and increase risk for all participants.
The paper outlines a phased approach. Early policies should back the first deployment of zero‑emission solutions in heavy‑industry sectors such as steel and cement. Mid‑term measures might include a zero‑emission vehicle mandate for heavy road transport. Later stages would require deeper market restructuring to maximise new technologies.
From a practical standpoint, pensioners could see more stable returns if policies reduce the cost of capital for renewable projects, making them less risky and more attractive to long‑term funds. This alignment could also protect the purchasing power of future retirees against the volatility of fossil‑fuel markets.
USS concludes that bold policy and smart investment must move together. One without the other is unlikely to succeed, and the risk of inaction can no longer be tolerated.
For many retirees, the shift may mean that their pension savings are better insulated from climate‑related market swings.
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