We have left it too late to tackle climate change incrementally. We now require a dramatic acceleration of progress through transformational change across society and the global economy. The pensions industry has an undeniably important role to play in supporting the journey to net zero, not least through investing for a world that its beneficiaries would want to live in. While this paper focuses on the UK, it is relevant for pension funds globally.
Acting on behalf of their beneficiaries, pension funds must rise to the challenge of ‘greening’ their investment strategy and portfolio assets. To do so requires fundamental change to the way investment decision making is framed.
We argue that the current net-zero strategies guiding pension funds and other asset owners (we shall simply refer to ‘pension funds’ here) are too strongly influenced by modern portfolio theory. At the same time, official climate scenarios are increasingly regarded as not being ‘decision-useful’.
This practitioner-focused paper sets out how the Economics of Energy Innovation and System Transition (EEIST) programme – initially targeted at net-zero policymakers – can be applied to catalyse a paradigm shift in transition planning in the investment industry.