Nest to inject £5.5bn into climate-friendly projects, decarbonise portfolio

Nest (National Employment Savings Trust), the UK’s largest pension scheme boasting a total of 9 million members, has pledged to pump £5.5 billion – almost half of its entire portfolio – into ‘climate aware’ investments, and aims to reach net zero carbon emissions across all of its stakes by 2050 by divesting from polluting projects.

The government-backed scheme – overseen by the Department for Work and Pensions – intends to ban all investments in companies involved in oil and coal mining as well as arctic drilling. The move has been hailed by climate activists as a significant step in the right direction, as pressure mounts on the industry to make more climate conscious investments.

Nest’s pledge involves immediately divesting from companies involved in fossil fuel extraction and production, with the promise to complete the process entirely by 2025. Its £5.5 billion investment is predicted to reduce Nest’s carbon footprint at a rate equivalent to taking 200,000 cars off the road, or heating 50,000 homes using renewable energy sources.

Alongside its commitment to greener investment strategies, Nest has announced that it will ‘actively pressure’ companies to align with the 2016 Paris Agreement’s goals – notably, keeping global temperatures no more than 1.5C above pre-industrial levels – and has promised to divest from those that fail to make adequate changes by 2030.

The move appears at odds with comments made by UK Pensions Minister, Guy Opperman, who criticised divestment as ‘counter productive’ in an opinion piece penned for The Telegraph earlier this month. He advised that oil and gas companies should refrain from divesting in fossil fuel projects, stating that they could use their leverage to ‘nudge, cajole or vote firms towards lower-carbon business practices’.

Following a fierce backlash from prominent divestment campaigners – including Green party MP Caroline Lucas and climate scientist Kevin Anderson from the Tyndall Centre for Climate Change Research – Opperman backtracked somewhat and clarified that divestment ‘should be part of a strategic approach to managing pension schemes’ exposure to risk, rather than something to be used by default’.

However, the Pensions Minister maintained his initial stance that divestment would be counterproductive, stating that ‘forcing pension schemes to divest and sell their assets to others would be self-defeating’.

Chief Investment Officer at Nest, Mark Fawcett, said that today’s announcement sent a ‘strong and clear message’ that the scheme is committed to taking climate concerns seriously, and that he has a duty to ensure that funds being pumped into retirement funds are used to protect the world that employees eventually retire into.

“Just like coronavirus, climate change poses serious risks to both our savers and their investments. It has the potential to cause catastrophic damage and completely disrupt our way of life. No-one wants to save throughout their life to retire into a world devastated by climate change.

“We believe our new policy sets out a clear vision of where we’re heading. We’ll now work on taking the necessary steps to become net-zero, using our close partnerships with fund managers to amplify our impact and coordinate activities towards meeting the Paris Agreement goals.

“Not only is this the right thing to do, it’s also what our savers want and expect from us. How can we offer them the prospect of a better retirement if we ignore the world they’ll be retiring into?”

Nest’s pledge follows a June report alleging that the UK government is considering ending financial support for fossil fuel projects overseas, as part of its wider aim to tackle climate change and align with the goals of the Paris Agreement. It emerged last month that £3.5 billion of public funds had so far been spent on polluting projects since the UK signed its commitment to the climate pact in 2016.

Some responses to Nest’s announcement are listed below:

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Junior Journalist at the UK Investor Magazine. Focuses primarily on finance and business content. Has personal interests in Middle Eastern politics, human rights issues, and sustainability initiatives.