Scottish Widows targets net zero across £170bn fund range by 2050

Scottish Widows becomes the first major pensions and insurance provider to target halving the carbon footprint of all its £170bn investments by 2030 in its path to net zero by 2050.

The company – which has more than six million customers in the UK – will also be investing billions of pounds in climate solutions, such as renewable energy, low carbon buildings, and energy efficient technologies, by 2025 to underline its commitment to positive change.

The ambitious move almost doubles the meaningful commitments the pension industry has pledged to reaching net zero targets, in line with the goals of the Paris Agreement.

Moving to net zero will safeguard customers’ investments in the long‐term from the risks associated with climate change while taking advantage of related investment opportunities. This will ensure Scottish Widows continues to meet its core purpose of looking after its customers’ savings, as well as helping to power the UK’s transition to a green economy.

However, a giant £2.17trn ‘green gap’ remains as the overwhelming majority of the country’s pension funds and providers have yet to outline meaningful plans to move their investments to net zero.

Scottish Widows, part of Lloyds Banking Group, said the road to net zero would be complex but it was the right thing to do for customers, for the country and the environment.

The pensions firm is calling on the rest of the industry to urgently close the ‘green gap’ and commit to net zero with a clear path to get there ahead of the COP26 global conference on climate change later this year. Pension providers need to shift from the current piecemeal approach, to a wholesale net zero investment strategy with clear shorter‐ and medium‐term milestones that are understood by the public, customers and policymakers.

Maria Nazarova‐Doyle, Head of Pension Investments at Scottish Widows, said:

“Our first responsibility is always to our customers and ensuring we are looking after their investments for the long‐term. Moving to net zero will protect savings against climate‐related risks and uncertainty and offer longer‐term sustainable growth by accessing low carbon transition opportunities.

“To get there we must set shorter‐term targets. Carbon emissions need to halve between now and 2030 or we won’t stand a chance of meeting the longer‐term net zero goal.

“To do the job properly across all our products and investments, we’ll use our influence through stewardship activity to drive the transition to a low‐carbon future in the real economy, while proactively investing in climate change solutions.

“The journey to net zero will not be easy but we are up for the challenge. A company of our scale cannot rely on mass carbon offsetting schemes to provide a false sense of security, or extensive exclusion lists to get results. Action that drives change in the real economy is the only way we can achieve the net zero goals.”

Anne‐Marie Trevelyan, Energy and Clean Growth Minister, said:

“Eliminating the UK’s contribution to carbon emissions requires urgent action across society and the whole economy.

“Scottish Widows’ fantastic commitment will help create meaningful, large‐scale change across the financial sector, positioning the UK as the global centre for green finance while protecting customers and the environment from climate change.”

Scottish Widows’ approach follows the Institutional Investors Group on Climate Change (IIGCC)’s Net Zero Investment Framework, which it helped develop. It helps provide a clear, transparent roadmap for net zero. Later this year, Scottish Widows will publish a target for its overall investment in climate solutions by 2025 and the carbon footprint of existing investments.

Calling for an industry‐wide shift to net zero investments

Despite some progress being made, the overwhelming majority of UK pension providers still have no credible net zero commitments in place, with just £177 billion in meaningful, specific commitments to net zero by 2050 with a crucial interim target of 50% CO2e reduction by 2030, in line with the IPCC findings.

Scottish Widows’ £170 billion assets under management almost double this total to £347 billion – but there remains a £2.17 trillion gap. That means 85% of pension savings are not held in funds committed to net zero.

The targets announced today are the latest step in Scottish Widows’ Responsible Investment and Stewardship Framework. They follow the company’s November 2020 announcement of plans to divest an initial £440 million from companies that have failed to meet its environmental, social and governance (ESG) standards.

Maria Nazarova‐Doyle, Head of Pension Investments at Scottish Widows, said:

“The pensions industry holds trillions of pounds worth of investments and can play a game changing role in supporting the global economy’s transition to a low carbon future, while earning sustainable returns for pension savers.

“We are making steady progress as an industry, but it’s not fast enough. The reality is we still have a very long way to go to close the green gap to net zero. To help prompt the shift to a low carbon economy, others within our sector must also make meaningful, large‐scale net zero commitments that include a dramatic reduction in emissions, if we were to have a chance to get to Net Zero by 2050.”

Stephanie Pfeifer, CEO, Institutional Investors Group on Climate Change, said:

“This is a very welcome commitment from Scottish Widows. Through setting a net zero target with a strong short‐term target and identifying and implementing a practical approach to realising these goals, investors play a key role in securing a sustainable and resilient future.

“We need to see investors across the entire sector align their portfolios with a net zero future. Scottish Widows has played an important role in IIGCC’s work, developing a Net Zero Investment Framework to make net zero alignment possible, together with over 70 of our members.”

Catherine Howarth, Chief Executive at responsible investment charity ShareAction, said:

“Kudos to Scottish Widows for their leadership in protecting pension assets, whilst also protecting the environment their customers and clients will retire into. The commitment to halve portfolio emissions by 2030 is especially welcome. ShareAction hopes to see many more big players in the UK’s pension sector step up in this way by the time of the Glasgow‐hosted COP26 summit.”

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