UK pension funds are being urged to take on more risk in green infrastructure investment to support the country’s net zero ambitions. According to Ian Brown, head of banking and investments at the National Wealth Fund (NWF), pension funds are playing it too safe by prioritising established energy projects rather than backing new infrastructure.
The Need for Greater Investment in Clean Energy
While pension funds are comfortable investing in wind and solar projects that are already operational, Brown argues that more financial backing is needed during the construction phase. Without this early support, the UK risks falling short of its net zero targets.
“We need to actually build this stuff,” Brown emphasised. “The UK requires between £30bn and £50bn annually to fund emerging clean energy technologies, but pension funds prefer safer, revenue-generating assets.”
Government Calls for Stronger Pension Fund Involvement
The UK government is actively pushing pension funds to play a greater role in green infrastructure investment. To encourage this, it is consolidating £1.3 trillion in pension assets to create “megafunds” capable of unlocking up to £80bn in new investment.
However, pension funds have traditionally avoided high-risk projects, particularly those still in development. Defined benefit (DB) pension schemes—which represent 80% of UK pension assets—are mostly closed to new members, making long-term investments in infrastructure more challenging.
Chris Hayes, economics director at Common Wealth think-tank, argues that pension funds should not bear the blame for a lack of investment. “Their primary duty is to secure retiree incomes, not to compensate for years of underfunding in public infrastructure,” he said.
The Scale of Investment Required
To reach the legally binding 2050 net zero target, the UK must invest an estimated £26bn annually in low-carbon infrastructure, according to the Climate Change Committee.
Before the last election, the Labour Party pledged £28bn per year for its Green Prosperity Plan but later scaled back the commitment. Instead, the government has expanded the National Wealth Fund, increasing its budget from £22bn to £28bn to finance new projects.
A parliamentary report previously criticised the UK Infrastructure Bank (UKIB), the predecessor of the NWF, for backing projects that were already financially secure instead of taking direct stakes in new infrastructure. The House of Commons Public Accounts Committee accused the UKIB of failing to address crucial funding gaps.
Key Sectors in Need of Investment
Brown highlighted several critical green energy sectors that urgently require pension fund investment, including:
- Floating offshore wind farms
- Battery storage technology
- Carbon capture and storage
He also stressed the need for government-led reforms to speed up planning approvals and improve connections to the National Grid, as delays have resulted in project cancellations.
Will Pension Funds Adapt to the Green Investment Push?
The push for increased pension fund investment comes amid growing pressure on fund managers to maximise returns while also supporting economic growth. Pensions Minister Torsten Bell recently called for a review of the £2.4tn retirement savings industry, emphasising the importance of a long-term investment strategy.
While pension funds remain cautious, rising demand for green infrastructure and the government’s push for policy changes could drive a shift towards higher-risk, high-reward investments in the coming years.
