Major pension funds are increasingly adopting climate targets and shifting their strategy to respond to global warming, according to a new report on the sector. However, many still invest in fossil fuel companies and more regulation is needed so the industry contributes further to the net zero transition.

The proportion of pension funds with at least one climate target jumped to 63% in 2024 from just 9% in 2020, according to the Climate Policy Initiative (CPI) thinktank. The CPI report covers 594 pension funds across OECD countries representing US$22.5tn in assets under management or owned.

The share of assets under management held by pension funds that have implemented at least one climate-related change to strategy, governance and process also rose to 68% from 38% in the same period, according to the study based on CPI’s Net Zero Finance Tracker data tool.

However, 55% of the $310bn that pension funds invest in equity or bonds in energy investments still support companies which are expanding fossil fuels, the report showed.

Pressure is mounting on pension funds to take more account of climate change risks, with campaigners calling on trustees to make sustainable investment decisions and use their voting power to push companies they invest in to go green.

Policymakers and regulators must provide a clear interpretation of fiduciary duty that includes climate risk, as well as mandatory disclosure requirements and obligations to develop transition plans, the CPI said.

“Funds operating in weaker policy environments consistently lag on both target setting and implementation. With strong, well-designed frameworks in place, pension funds can become powerful drivers of the financial sector’s net-zero transition,” said Barbara Buchner, CPI managing director.

Earlier this month, the UK government pledged to update guidance on pensions’ fiduciary duty to beneficiaries, to recognise that trustees can “take into account structural factors such as climate risk” when they are making investment decisions, according to Environmental Finance.

The world’s biggest public pension and sovereign wealth funds are still convinced of the need to finance the energy transition despite a shift in US policies which is creating investment opportunities elsewhere, especially in Asia, a recent report showed.

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