Scottish Widows pledges £25bn of low-carbon investment by 2025 on road to net-zero

Image: Scottish Widows

Published today (3 February), the Climate Action Plan builds on the commitment set by Scottish Widows this time last year to halve financed emissions by 2030 and to bring them to net-zero by 2050. It was developed using the template provided by the Paris Aligned Investment Initiative (PAII).

When Scottish Widows first announced its 2030 and 2050 targets, it stated that it would “invest billions of pounds” in industries that help to drive the low-carbon transition, including electric vehicles, renewable energy generation, energy flexibility, fossil-free heating and energy-efficient buildings.

The new Climate Action Plan confirms an ambition for Scottish Widows to reach up to £25bn in “companies leading on climate solutions and decarbonisation” by 2025, up from £5bn at present. £3bn of the £5bn currently invested was announced today, also, in BlackRock’s Climate Transition World Equity Fund. This Fund invests in companies “that are well-positioned to maximise the opportunities and minimise the potential risks associated with a transition to a low carbon economy”.

At least £1bn of the £25bn will go to mature and shovel-ready low-carbon sectors including building retrofitting and renewable electricity generation using wind and solar.

For other companies included in Scottish Widows’ portfolios, the Climate Action Plan details plans to change engagement and exclusion policies to support companies to decarbonise in line with climate science.

On exclusion, Scottish Widows has already excluded fossil fuel firms from its £250m environmental fund and stopped investing, across all funds, in companies deriving 10% or more of their revenue from tar sands or thermal coal. The Plan states that Scottish Widows will be “regularly reviewing” exclusion policies on the grounds of climate impact and human rights, stating that poor performers in these fields could soon become stranded assets, beyond just the fossil fuel sector.

However, the Plan summarises that the firm “prefers to have a constructive dialogue with the senior management” of companies that need to accelerate decarbonisation. It details plans to improve engagement with companies failing to disclose and minimise their climate risks, by engaging both internal and third-party fund managers.

The Plan states: “Our investment belief is that companies which fail to address climate change and the transition to a low-carbon economy will see the cost of running their businesses rise significantly because of ‘climate-driven cost of capital charges’, making them less attractive investments. This means positive customer outcomes are best achieved through portfolios that exhibit lower carbon footprints than the market.”

Should investment managers fail to deliver the emissions reductions targets set for them, on a fund-by-fund basis, they will be subject to “closer monitoring and engagement”, the Plan adds.

“Controlling trillions of pounds worth of investments, the pensions industry has a responsibility to act as a responsible steward for the success of climate solutions – and to exclude investments in high-carbon companies which are resistant to change,” said Scottish Widows’ head of pension investments and responsible investments Maria Nazarova-Doyle.

Scottish Widows’ Plan touts itself as the first of its kind in the sector, coming one year ahead of the Treasury’s planned introduction of mandatory net-zero transition plan publication for large financial firms.

Nazarova-Doyle said she “looks forward” to other pensions providers publishing their own plan, stating that these plans, once they span the whole sector, “set a clear expectation for high-carbon sectors resistant to change”.

A sector lagging on climate

In October 2021, Make My Money Matter released research concluding that 71% of the UK’s largest pension schemes do not yet have credible plans for reaching net-zero – a proportion representing more than £2trn.

The amount represented did subsequently fall to around £1.7trn by the beginning of 2022. Last Month, Make My Money Matter named Scottish Widows as one of the UK firms with “robust” net-zero plans, along with the likes of Nest, Aviva and Smart Pensions.

Make My Money’s definition of “robust” excludes net-zero targets that sit after 2050, and long-term targets not backed up with commitments and plans to halve emissions by 2030. 

The UK’s Pensions Schemes Bill requires large pension schemes to disclose the climate-related risks posed to assets in their portfolios by the end of 2022, in line with the Task Force on Climate-related Financial Disclosures’ (TCFD) framework. However, several green groups had wanted stronger mandates on net-zero alignment.

Sarah George