Most Pension Plans Don’t Think Net Zero Is Possible

Some of the world’s largest institutional investors are still unsure about the prospect of net zero, even as voices arguing for sustainable investing have grown louder.

Only 16 percent of pension plans have fully embedded the goal of producing net zero carbon emissions into their asset allocation process, according to a new survey by DWS Group. While 42 percent of the pension plans said they are in the implementation phase, only 28 percent have set interim targets. The result: Sixty percent of pension plans don’t believe they will achieve the net zero target, according to DWS.

DWS Group based the results on a telephone survey of 50 pension plans across North America, Europe, and Australasia. Fifty-four percent were public pension plans and 46 percent were in the private sector. Together, the 50 pensions have EUR 3.3 trillion ($3.48 trillion) in assets under management.

“The net zero goal is unlikely to be met,” the DWS report concluded. It said that COP26 — the 2021 United Nations Climate Change Conference in Glasgow, Scotland — “delivered more than expected but less than needed.”

Passive investors are even more behind when it comes to pricing in climate risks. According to DWS, 24 percent of passive investors said their implementation of net zero goals is “already mature,” versus 44 percent of active investors. Twenty-eight percent of passive investors said they were only at the “awareness raising” stage, compared to only 4 percent of active investors.

The lack of commitment to carbon-neutral goals is not limited to allocators. Even BlackRock, the asset management giant that has in many ways spearheaded sustainable investing, said in a memo yesterday that it’s not likely to support climate proposals that are “unduly prescriptive and constraining.” That means the company’s support for climate shareholder proposals “will likely fall significantly this year,” according to The Sunrise Project, a social activist group. 

According to DWS, one of the biggest obstacles on the road to net zero is that “many companies are pledging to hit their net zero targets in almost three decades’ time without committing to concrete action that can be monitored and for which they will be held accountable.” The fact that not all organizations are regulated by the same reporting standards also slows down the net zero progress. 

Other obstacles include a dearth of high-quality data and lack of alignment between asset managers and owners on net-zero goals. For this reason, asset managers often lack confidence in their ability to meet net-zero targets, Institutional Investor previously reported.

But Sebastian Schiele, head of passive mandates sales at DWS Group, said the survey results do not imply that sustainable investing has a dark future. On the contrary, he said the results have pointed out what allocators can do to improve the status quo. For one, they can push their governments to regulate companies that refuse to comply with ESG reporting rules. “A mix of incentives and punishments are needed” for achieving net zero, he said. “And this can only be done by the government.”