In the race to achieve the UK’s ambitious net-zero goals, pension funds are being called upon to take a more proactive role in financing green infrastructure projects. Ian Brown, head of banking and investments at the National Wealth Fund (NWF), has highlighted that UK pension funds are currently too risk-averse, opting for established energy ventures rather than backing emerging clean energy technologies during their critical construction phases. This reluctance could hinder the country’s progress towards its sustainability targets.
The Case for Higher-Risk Investments in Clean Energy
While pension funds have shown a willingness to invest in operational wind and solar projects, Brown argues that the real challenge lies in securing funding for projects still in development. The UK needs between £30 billion and £50 billion annually to finance new clean energy technologies, yet pension funds tend to prioritise safer, revenue-generating assets. “We need to actually build this stuff,” Brown emphasised, pointing out that without sufficient early-stage investment, the UK risks falling short of its legally binding 2050 net-zero target.
Government Efforts to Mobilise Pension Funds
The UK government is taking steps to encourage pension funds to play a larger role in green infrastructure investment. One initiative involves consolidating £1.3 trillion in pension assets into “megafunds,” which could unlock up to £80 billion in new capital for green projects. However, defined benefit (DB) pension schemes—representing 80% of UK pension assets—are often closed to new members, making long-term investments in infrastructure more complex. Critics like Chris Hayes, economics director at Common Wealth think-tank, argue that pension funds should not shoulder the burden of addressing decades of underinvestment in public infrastructure. “Their primary duty is to secure retiree incomes,” Hayes noted, suggesting that broader systemic issues must also be addressed.
The Scale of Investment Needed
According to the Climate Change Committee, the UK must invest approximately £26 billion annually in low-carbon infrastructure to meet its 2050 net-zero commitment. Although the Labour Party initially pledged £28 billion per year for its Green Prosperity Plan, this figure was later scaled back. In response, the government has expanded the National Wealth Fund, increasing its budget from £22 billion to £28 billion to support new projects. A parliamentary report previously criticised the UK Infrastructure Bank (UKIB), the NWF’s predecessor, for favouring financially secure projects over direct investments in emerging infrastructure. The House of Commons Public Accounts Committee accused the UKIB of failing to bridge crucial funding gaps.
Key Sectors Requiring Immediate Attention
Ian Brown identified several high-priority sectors that urgently need pension fund investment. These include floating offshore wind farms, battery storage technology, and carbon capture and storage systems. He also stressed the importance of government-led reforms to streamline planning approvals and improve grid connections. Delays in these areas have already led to project cancellations, further complicating efforts to meet climate goals.
Will Pension Funds Rise to the Challenge?
The push for greater pension fund involvement comes amid mounting pressure on fund managers to balance maximising returns with supporting economic growth. Pensions Minister Torsten Bell recently advocated for a review of the £2.4 trillion retirement savings industry, underscoring the need for a long-term investment strategy. While pension funds remain cautious, rising demand for green infrastructure and ongoing policy changes may prompt a shift towards higher-risk, high-reward investments in the future.
