Mobilising pension capital for net zero: a policy blueprint for the UK

This landmark blueprint, Mobilising pension capital for net zero: a policy blueprint for the UK, is a first-time collaboration between IFM Investors, UK and Australian pension funds, and the UK Pensions and Lifetime Savings Association (PLSA). Pension funds represent one of the largest and fastest growing pools of capital in the 21st century, with the UK and Australian pensions systems respectively the third and fifth largest in the world. Collectively, the signatories to this blueprint represent £1.7 trillion in pension savings invested on behalf of more than 30 million workers in the UK and more than 10 million workers in Australia.

We believe that the right policy settings can help unlock further investment in the UK’s net zero transition, drive economic growth and deliver appropriate risk-adjusted returns on workers’ retirement savings.

This blueprint calls on the government to take an active and coordinated approach across fiscal, planning, climate, renewables and industrial decarbonisation policy to give investors of pension capital greater clarity and confidence in the UK market. The actions we outline will also support the development of more investable opportunities at scale and speed.

Our key recommendations include:

• adapting the fiscal rules for calculating public sector net debt to account for investment in productive assets by the National Wealth Fund and Great British Energy

• focusing the National Wealth Fund on supporting the commercial development of higher risk net zero industries and projects, where it can play a valuable role bridging gaps in capital markets

• setting clearly defined commercial objectives for Great British Energy so that it can effectively partner with and mobilise additional investment by long-term investors like pension funds

• improving physical and regulatory integration between the UK and EU energy markets to support harmonised, tariff-free trading and two-way energy flows

• extending Contract for Difference terms for new renewable and low carbon power generation beyond 15 years to reflect longer project lives and unlock a lower cost of capital, and

• streamlining the permitting process for repowering onshore wind sites, using new technology to upgrade existing wind farms and increase renewable energy production.

We support the new government’s ambition to have pension funds play a major role in decarbonising the UK economy and investing in the industries that will drive future growth, jobs and innovation.